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Market integration, country institutions and IPO underpricing

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  • Marcato, Gianluca
  • Milcheva, Stanimira
  • Zheng, Chen

Abstract

We extend the IPO literature analysing the role of financial market integration in the development of IPO markets and the pricing of newly listed stocks. Using a hierarchical linear model, we show that differences in underpricing between markets with high and low financial integration levels are economically significant and may explain the choice of location in the listing process. Firstly, market integration negatively affects the level of IPO underpricing by increasing the importance and efficiency of the financial intermediation process via tradable securities. Secondly, the presence of a deeper market integration has a moderation effect, which weakens the explanatory power of country institutions in the cross-country variation of IPO underpricing. Finally, we suggest a hierarchical structure be assumed for the modelling of cross-country IPO studies with heterogeneous country characteristics. Our results are robust to alternative measures of financial integration and several model specifications.

Suggested Citation

  • Marcato, Gianluca & Milcheva, Stanimira & Zheng, Chen, 2018. "Market integration, country institutions and IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 53(C), pages 87-105.
  • Handle: RePEc:eee:corfin:v:53:y:2018:i:c:p:87-105
    DOI: 10.1016/j.jcorpfin.2018.10.002
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    More about this item

    Keywords

    Financial market integration; IPO underpricing; Country institutions; Hierarchical linear modelling; Foreign IPOs;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • F3 - International Economics - - International Finance

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