Creating the Perfect IPO: Direct Listing in the Context of IPO Underpricing

Abstract

This thesis will contribute to the topic of underpricing in initial public offerings (IPO) mechanism, specifically addressing the growing discussion in the venture cap-ital (VC) industry about the fairness of the mechanism. Using a sample of IPOs between 2001 and 2019, the thesis finds that firms backed by VC-firms experience a higher degree of first-day returns when comparing to non-VC-backed firms. Further, the thesis introduces the direct listing method as an option to address inef-ficiencies in the IPO market, and discusses whether this can be a viable substitute. While the method is new, and there exist some legal gray areas that would have to be sorted out, the thesis concludes that the direct listing method can become an attrac-tive method for firms pursuing access to the capital markets without experiencing the wealth transfer that occurs in a traditional IPO.