Abstract
Election politics highlighted the flyover label—those states between the two coastal regions of the US. The implication is that the interior part of the country may be viewed as behaviorally different from the coastal regions. This research considers whether this perception passes through to the financial markets. In particular, after accounting for risk and lead underwriter prestige and incorporating the fixed effects of year and industry, is underpricing of IPOs affected by company address—coastal versus non-coastal? The results of this research suggest yes—there is less underpricing for non-coastal companies. Flyover IPOs experience about 5.5% less first-day underpricing. Also, IPOs originating from the flyover states appear to outperform coastal IPOs for both one year and three years post IPO, when comparing compounded wealth relatives (assuming investment at the closing price of the first day of trading).
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Notes
A 2016 article posted by National Geographical provides a contemporary definition of flyover country: “The term “flyover country” is often used to derisively refer to the vast swath of America that’s not near the Atlantic or Pacific coasts. It sounds like the ultimate putdown to describe places best seen at cruising altitude, the precincts where political and cultural sophisticates visit only when they need to.” Available at http://news.nationalgeographic.com/2016/03/160314-flyover-country-origin-language-midwest/accessed May 26, 2017.
For a summary of grievances see “5 Messages from Trump Country for Coastal Elites”, available from http://thefederalist.com/2016/12/06/5-messages-trump-country-coastal-elites/ accessed July 8, 2017.
A recent New York Times article, appearing in the DealBook section, summarizes the efforts being made by Steve Case and J.D. Vance to reorient the focus of investors from the coasts to Midwest cities. “From Bezos to Walton, Big Investors back Fund for ‘Flyover,’ Start-Ups”, available at https://www.nytimes.com/2017/12/04/business/dealbook/midwest-start-ups.htmlaccessed December 8, 2017.
Issie Lapowsky, “Hey, Coastal Elites: Don’t Dis ‘Flyover Country’—Fund It,” https://www.wired.com/2017/03/hey-coastal-elites-dont-dis-flyover-country-fund/ Accessed July 7, 2017.
“How Steve Case Became Washington’s Tech Whisperer: Can flyover country share in the prosperity of Silicon Valley.”? At
http://www.politico.com/agenda/story/2017/06/08/steve-case-innovation-venture-capital-fund-000447
A description of Tech Coast Angels investment and exit in WeGoLook, and the estimated average seven year investment period is available at: https://www.techcoastangels.com/tech-coast-angels-ace-fund-ii-unlocks-investment-opportunities-in-flyover-states-2/accessed December 8, 2017.
A recent study of the average age for successful venture exits cites seven years for acquired companies and 8.25 years for IPO companies. “CrunchBase Reveals: The Average Successful Startup Raises $41 M, Exits at $242.9 M. available at https://techcrunch.com/2013/12/14/crunchbase-reveals-the-average-successful-startup-raises-41m-exits-at-242-9m/accessed December 8, 2017.
For a detailed review of IPO underpricing research through 2000 see Ritter and Welch (2002).
According to Ritter (1991), the strategy of investing in IPOs at the end of the first trading day results in only $.83 per $1 in the matched group of firms listed on either the NYSE or the AMEX.
https://www.iposcoop.com/scoop-track-record-from-2000-to-present/(accessed January 2017).
Fernando et al., (2012). I used the updated rankings in this paper because the time period (2001–2010) more closely matched my sample.
Kendzior’s academic field is anthropology and is a resident of St. Louis. A collection of her essays appear in her book “The View from Flyover Country.”, which is available through Amazon.
See “Cruz derided ‘New York values’ with a sneer, but now must face New Yorkers.” https://www.washingtonpost.com/politics/cruz-confronts-new-york-values-in-the-empire-state/2016/04/08/c4bbd528-fd9c-11e5-9140-e61d062438bb_story.html?utm_term=.38732cd7fed7, accessed May 26, 2017
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Mohan, N. The flyover effect on IPO returns. J Econ Finan 43, 127–142 (2019). https://doi.org/10.1007/s12197-018-9434-1
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DOI: https://doi.org/10.1007/s12197-018-9434-1