An analysis of the liquidity benefits provided by secondary markets

Review of Theoretical Explanations of IPO Underpricing

“…The authors apply the endogeneity correction procedure proposed by Habib and Ljungqvist (2001) finding that reputable underwriters charge higher underwriting fees in exchange for lower yields leading to higher net proceeds for bond issuers. Similar evidence also documented by Mantecon and Poon (2009) and Akkus, Cookson, and Hortaçsu (2016) show that the positive relationship between underwriter reputation and underpricing found in the 1990s by previous studies disappears. This occurs after controlling for the endogenous choice of IPO issuers in selecting reputable underwriters when they intend to sell large portions of their holdings which changed to negative in the U.S. IPO market.…”

“…Finally, the managerial control hypothesis treats the employment of reputable underwriters by the issuers of IPO firms as an exogenous decision ignoring the choice of the underwriter as decided by the issuers. This happens when issuers intend to sell part of their holding before going public, and ignoring this endogeneity leads to omitted variable bias as argued by Habib and Ljungqvist (2001), Chen and Mohan (2002), Chahine (2008); Mantecon and Poon (2009) and Jones and Swaleheen (2010). In this way, the validity of the entrenchment managerial control hypothesis is questionable.…”

Information content of IPO grading

“…Liquidity in the secondary market is measured through daily turnover ratio, calculated as quantity traded over total number of shares issued. Turnover ratio is one of the very popular measures of liquidity measure recent studies such as Mantecon and Poon (2009) uses turnover ratio as a proxy of aftermarket liquidity in their study. We calculate average daily turnover ratio for day 6 to day 90 of listing (TOR90).…”

IPOs, clustering, indirect learning and filing independently

“…Using data on all IPOs in Sweden between 1995and 2001, Bodnaruk et al (2008 argue that less diversified individual shareholders, especially those with lower wealth, sell more at the IPO, and that firms held by less diversified controlling shareholders are more likely to go public and exhibit more underpricing. Mantecon and Poon (2009) study US firms that went public from 1996 to 2003 and report that CEOs who have more wealth tied to their firms are significantly more likely to hire prestigious underwriters and to exhibit significantly higher underpricing. Accordingly, we expect a positive relation between insider selling in the IPO and the degree of independence.…”

“…from the 1980s, Pagano et al (1998) find that primary capital is used to pay off long-term debt. 4 Mantecon and Poon (2009) argue that a private firm with a limited operating history may find it prohibitively costly to finance acquisitions without using an IPO. Their analyses reveal that firms funding acquisitions with stock after their IPOs use higher ranked underwriters and are more underpriced.…”