Vladimir Ivanov (U.S. Securities and Exchange Commission): U.S. exchange upgrades: Reducing uncertainty through a two-stage IPO

Vladimir Ivanov (U.S. Securities and Exchange Commission): U.S. exchange upgrades: Reducing uncertainty through a two-stage IPO

Co-authors: Rebel A. Cole and Ioannis V. Floros

Abstract

We examine the effects on IPO uncertainty of an alternative going-public mechanism – the two-stage IPO, where a firm first gets quoted on the OTC market, and then upgrades to a national exchange where it first issues public equity. We find that a two-stage IPO firm experiences lower underpricing and return volatility than does a similar traditional IPO firm. We also find that uncertainty decreases significantly between the times of first OTC market quotation and the national exchange upgrade. We show evidence that two-stage IPOs with greater disclosure and liquidity during the first stage experience greater reduction in uncertainty.

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