TheCorporateCounsel.net

This post on the CS Blue Sky Blog highlights findings from “A Comparison of Direct Listings and Initial Public Offerings,” a study by Anna Bergman Brown of Clarkson University, Donal Byard of Baruch College, and Jangwon Suh of Queens College. Given suggestions by SEC commissioners and other regulators that direct listings present greater risk to investors than IPOs, the study assessed the types of companies that listed via IPO versus direct listing and the average price volatility post-listing.

The study used a sample of IPOs and direct listings on European stock exchanges given the historically few direct listings in US markets, despite their increasing popularity since Spotify’s in 2018. Here’s an excerpt summarizing the findings:

The first significant finding is that, on average, DL firms are significantly larger, more profitable, and less leveraged than IPO firms – all of which suggest that, on average, DL firms are less risky than IPO firms.

Our second significant finding is that, when we compare the post-listing price volatility of DLs with similar IPOs, consistent with some regulators’ suspicions, we find that DLs are riskier than IPOs in the immediate post-listing period: DLs have higher price volatility than similar IPOs in the immediate post-listing period. However, we find that this excess price volatility dissipates rather quickly: On average, it lasts for only 20 trading days.

We also find that, in industries with a richer “industry information environment” – i.e., where the existing listed firms in that industry already provide relatively high-quality public disclosures – there is no difference in post-listing price volatility across DLs and IPOs.

There is still the issue of traceability…and there’s more to come on that. For now, for more on direct listings, take a look at our “Direct Listings” Practice Area.

– Meredith Ervine