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The Impact of Firm and Information Production on the Aftermarket Liquidity of IPO Firms


The Impact of Firm and Information Production on the Aftermarket Liquidity of IPO Firms

Yao, Qian (2015) The Impact of Firm and Information Production on the Aftermarket Liquidity of IPO Firms. Masters thesis, Concordia University.

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Yao_MSc_S2016.pdf - Accepted Version


This study investigates the relationship between the aftermarket liquidity and underpricing of IPO firms by examining a sample of U.S. IPOs issued during the period 1996-2011. We first explore the relationship between stock liquidity (e.g., turnover and Amihud illiquidity) and underpricing during a one-year period after the IPO. Our results suggest that underpricing indeed boosts aftermarket liquidity and is thus in line with similar findings in the previous literature. Thus, a possible mechanism is likely to link the initial returns of IPO with lasting higher aftermarket liquidity. In this context, we propose and examine that “information production” hypothesis that IPO firms experience more information revelation to realize a “market appetite” for newly issued shares. Our empirical results demonstrate that analyst coverage, measured by the number of analysts following the IPO, and news reports, measured by the number of news mentioning the IPO firm, are two probable sources for information generation after the IPO. With a higher level of underpricing, IPO companies will certainly attract more analysts and more media coverage. Then, we check the link between information generation after the IPO and liquidity post-listing. Consistent with our expectations, there is a positive and significant relationship between the number of analysts and liquidity, and the number of news and liquidity. Based on this finding, we conclude that more information generation possibly induces attention among institutional investors and the public, which in turn causes higher aftermarket liquidity. Our study indicates that the underpricing of IPO firms serves as a possible compensation for underwriters and potential investors to obtain more analyst coverage and media attention, which is positively related to higher aftermarket liquidity.

Divisions:Concordia University
Concordia University > John Molson School of Business
Concordia University > John Molson School of Business > Finance
Item Type:Thesis (Masters)
Authors:Yao, Qian
Institution:Concordia University
Degree Name:M. Sc.
Program:Administration (Finance option)
Date:September 2015
Thesis Supervisor(s):Walker, Thomas
Keywords:IPO Underpricing, Aftermarket Liquidity, Information Production
ID Code:980651
Deposited By: QIAN YAO
Deposited On:17 Jun 2016 14:34
Last Modified:18 Jan 2018 17:51


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