Traditional and Online IPO Processes: Are there Differences in after-Market Trading and Market Making?

Authors:
Michael S. Piwowar;Troy J. Strader;Richard B. Carter
Affiliations:
Department of Finance, Iowa State University, Office of Economic Analysis, U.S. Securities and Exchange Commission, USA;Information Systems, Drake University, USA;Department of Finance, Iowa State University, USA
Venue:
Electronic Commerce Research
Year:
2004

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Abstract

In this study we compare the after-market trading and market making activities of a sample of Nasdaq online initial public offerings (IPOs) to a matched sample of traditional IPOs. We find that online IPOs have significantly higher turnover in after-market trading, and more market makers, dealers, and electronic communications networks servicing their trading activities than traditional IPOs. We find no difference between the samples in after-market volumes, block trades, or the number of dealers actually engaged in trading. We believe this provides some support for the notion that distribution of IPOs to online customers facilitates liquidity in the after-market, at least for the smaller investor. We also believe that the evidence implies that control of the after-market trading is still in the hands of the institutional investor and that the advantages the Internet offers as a global communication network are at this point not being fully utilized.