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School of Business | Department of Finance | Finance | 2015
Thesis number: 14164
Share liquidity following an IPO: determinants, alternative market listings, and lockup expiration
Author: Kyöstilä, Ari
Title: Share liquidity following an IPO: determinants, alternative market listings, and lockup expiration
Year: 2015  Language: eng
Department: Department of Finance
Academic subject: Finance
Index terms: rahoitus; financing; likviditeetti; liquidity; osakkeet; shares; pörssit; stock exchanges
Pages: 56
Key terms: share liquidity; initial public offering; IPO; alternative stock exchange list; insider lockup; European stock exchanges

This thesis studies several aspects related to share liquidity immediately following an IPO. My main objective is to empirically test and determine which IPO process and firm related factors drive the liquidity levels of the share during the six months after an IPO. Additionally, I explore share liquidity of firms listing on alternative stock markets, which are often noted for worse liquidity on average compared to main lists. My second objective is to find out whether the factors driving post-IPO liquidity differ between main and alternative list IPOs. Finally, I study IPO insider lockup periods and test whether the expiration of said lockup periods have an effect on the liquidity of the share. My thesis contributes to existing IPO liquidity research by providing new evidence from Europe, especially regarding alternative stock exchanges and IPO lockups.


The data sample used in the empirical part of the study includes 753 IPOs completed on stock exchanges of the four largest European economies (Germany, UK, France, and Italy) between 2004 and 2013. Tests involving lockup period expiration utilize a smaller subsample of 530 lockup periods. The data are collected from SDC, Datastream, and IPO prospectuses. I use a multivariate cross-sectional regression model to test for the determinants of post-IPO liquidity using 3 different liquidity measures as dependent variables and 15 explanatory variables with country and year fixed effects. In addition, I use a paired Student's test to assess the liquidity effect of insider lockup expirations by utilizing a 60-day event window study.


My results indicate that, when liquidity is measured with share turnover, proportional bid-ask spread and price impact of trading, IPOs that utilize book building as a pricing mechanism as well as IPOs that release a higher proportion of outstanding shares to new investors (IPO float) are associated with significantly higher share liquidity following the IPO. Conversely, IPOs with higher absolute offer prices seem to suffer from lower share turnover and higher spreads. Contrary to earlier research, underwriter reputation and venture capitalist presence have no significant effect on post-IPO share liquidity in my sample. Post-IPO analyst coverage appears to be considerably more important for the liquidity of firms listing on alternative stock markets compared to firms listing on main exchange lists. In addition, the economic significance of analyst coverage is far greater compared to other determinants found to be significant in explaining post-IPO liquidity. Apart from analyst coverage, the determinants of post-IPO liquidity for alternative market IPOs do not differ from main list IPOs. Finally, my findings show that lockup period expiration is associated with a statistically significant increase in bid-ask spreads.
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