Accounting and Finance Seminars: Dr Hafiz Hoque
Dr Hafiz Hoque (York Management School)
G.15, 15-19 Tyndalls Park Road
Title: Endogenous market choice, book runner heterogeneity and IPO Gross Spread
I examine the IPO gross spread of the two markets that comprises the London Stock Exchange — the Main Market (MM) and the Alternative Investment Market (AIM). I find IPO gross spread in the AIM is 2.37% higher than the MM by using the data over 1995-2014. I relate this spread differential to the self-selection of market. The self-selection parameter, inverse Mills ratio is positive and significantly related to IPO spread. Endogenous switching regression results show that if AIM IPOs issue equity in the MM they would have paid much lower fees. I find that for some IPOs there was no choice as they do not fulfil MM listing requirements. Spread charged to the AIM IPOs that do not fulfil the Main Market listing requirements is 7.24% and AIM IPOs that fulfil the MM listing requirements are 5.73%. I find evidence that firms which do not fulfil Main Market listing requirements need to pay more to the book runners, possibly, because they are risky. Since, the book runners are different in the two markets, I control for the heterogeneity of underwriters by applying underwriters fixed effects.