CATÁLOGO DE INVESTIGACIONES | AÑO ACADÉMICO 2020-2021 17 Is Direct Listing the next evolution of the IPO market? There are various ways for a company to access the US capital markets. The most common of all is through an IPO and it gives the firm an opportunity to raise new capital and a better chance to mitigate any underinvestment situation, over-leveraging for the financing of its growth and potentially, increases the overall value of the firm. It also gives the opportunity of exit to the company’s early stage investors, to lower their cost of capital and decreases its asymmetric information. An IPO will require the company to engage an underwriter, who when pricing the offering, will tend to underprice it, which leads to leaving money on the table. The underwriter act pursuant to theories that argues that intentional underpricing may act like insurance against possible securities litigation (Ljungqvist, 2007) explains that in this theory a trade-off is taken between minimizing the probability of litigation and maximizing the gross proceeds from the IPO. The underwriter’s fee and all the costs of becoming public through an IPO are the most notably disadvantages of this method causing a rise of other alternatives to go public, such as the direct listing, which instead of raising funds by issuing new securities, the company registers its privately held shares on behalf of its existing shareholders. A direct listing does not generate funds for the company, the process is less costly than an IPO and it may grant the opportunity of achieving its goals in a shorter timeframe. Direct Listings are certainly an evolution in the IPO markets, but there is resistance from investment bankers because when acting as underwriters, banks have certain incentives for their gatekeeping role that translates into more commissions, while, in a direct listing, the financial advisor is not incentivize as an underwriter in an IPO. The next evolution in the IPO market must guarantee a quicker listing process, lower entry costs, significant marketing efforts by the most prestige investment bankers and after listing coverage by recognized analysts. dalvin hernández pérez maestría en administración de empresas con especialidad en finanzas mentor: dr. john villavicencio mattos ipo direct listing underwriters underpricing financial advisors
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