The flyover effect on IPO returns
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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).
KeywordsInitial public offering Underpricing Investment banker prestige Long-run performance
JEL ClassificationG30 G32
- Loughran T, Ritter JR (2004) Why has IPO underpricing changed over time? Financ Manag 33:5–37Google Scholar