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

Antonios Kallias; Konstantinos Kallias; Guancheng Lu; Song Zhang

doi:10.1016/j.frl.2021.101966

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

Finance (Business School)

Research output: Contribution to journal › Article › peer-review

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 language	English
Article number	101966
Number of pages	7
Journal	Finance Research Letters
Volume	43
Early online date	13 Feb 2021
DOIs	https://doi.org/10.1016/j.frl.2021.101966
Publication status	Published - 1 Nov 2021

Keywords

Initial public offerings
Banking market concentration
Soft information
Venture capital

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10.1016/j.frl.2021.101966

Kallias_2021_FRL_Localbanking_AAM
Copyright © 2021 Elsevier Inc. All rights reserved. This work has been made available online in accordance with publisher policies or with permission. Permission for further reuse of this content should be sought from the publisher or the rights holder. This is the author created accepted manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1016/j.frl.2021.101966
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Cite this

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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.",

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AU - Kallias, Antonios

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AU - Lu, Guancheng

AU - Zhang, Song

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AB - 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.

KW - Initial public offerings

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KW - Soft information

KW - Venture capital

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JO - Finance Research Letters

JF - Finance Research Letters

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ER -

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

Abstract

Keywords

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