Why local banking market concentration hinders IPOs and how it can work to issuers’ advantage

Antonios Kallias*, Konstantinos Kallias, Guancheng Lu, Song Zhang

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

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    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.
    Original languageEnglish
    Article number101966
    Number of pages7
    JournalFinance Research Letters
    Volume43
    Early online date13 Feb 2021
    DOIs
    Publication statusPublished - 1 Nov 2021

    Keywords

    • Initial public offerings
    • Banking market concentration
    • Soft information
    • Venture capital

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