Underpricing, Stock Allocation, Ownership Structure and Post-Listing Liquidity of Newly Listed Firms

This study investigates the relationships between underpricing, ownership structure and post-listing liquidity of Initial Public Offerings (IPOs). It is argued that increasing the degree of underpricing induces both broader investor participation and creates a more diffuse ownership structure. These two factors in turn are positively associated with the level of post-listing trading, and therefore offer an explanation of how underpricing can influence liquidity. Our results indicate that underpricing is related to the shareholder distribution formed after the allocation process. Moreover, it is positively associated to post-listing liquidity. These relationships are robust and possess a high degree of statistical and economic significance.