IPO underpricing and local networks across issuing firms

Abstract

Does the geographic proximity to other issuing firms affect the size of IPO underpricing? I provide significant evidence on the IPO underpricing effect of geographic distribution by exploiting spatial proximities across issuers who have hired the same underwriter for the IPO process. The results highlight that spatial proximities among issuers matter and imply different effects on the IPO underpricing between the two macro-area analyzed, the US and the European continent. Ceteris paribus, the underpricing is about 4 percentage points lower for firms that choose an underwriter as nearby issuers in the US. At the same time, it is about 3 percentage points higher for firms that choose an underwriter as nearby issuers in the European continent. However, even if the results are remarkable, they are novel and require further work for future developments and a most comprehensive interpretation. [edited by Author]