Why local banking market concentration hinders IPOs and how it can work to issuers’ advantage
Abstract
General sample evidence conceals the influence of banking market structure on a fraction of IPO issuers with limited financing options: small non-venture-capital-backed firms (SNVC). Using U.S. county-level data, we reveal that concentrated banking markets contract IPO activity, as they cause SNVCs to incur high underpricing at listing. However, when the size of the local banks is small, both the time to IPO and underpricing decrease. Our evidence infers that, unless banks are organizationally capable of tapping into soft information, they generally use market power for rent extraction, which has important spillover effects on the IPO market.
Citation
Kallias , A , Kallias , K , Lu , G & Zhang , S 2021 , ' Why local banking market concentration hinders IPOs and how it can work to issuers’ advantage ' , Finance Research Letters , vol. 43 , 101966 . https://doi.org/10.1016/j.frl.2021.101966
Publication
Finance Research Letters
Status
Peer reviewed
ISSN
1544-6123Type
Journal article
Collections
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