Urban Economic Openness and IPO Underpricing

Gianluca Marcato, Stanimira Milcheva, Chen Zheng

Research output: Contribution to journalArticlepeer-review

5 Citations (SciVal)


This paper represents a first attempt to employ a macroeconomic approach to explain the high and varying IPO underpricing within a single emerging market. We examine the empirical impact of trade openness on the short-run underpricing of initial public offerings (IPOs) using city-level data. Particularly, we argue that urban economic openness (UEO) has a significant impact on the productivity and on prices of both direct and indirect real estate due to productivity gains of companies in more open areas. This in turn positively affects the firm’s profitability, enhancing the confidence in local real estate markets and future company performance, hence decreasing the uncertainty of the IPO valuation. As a result, issuers have less incentive to underprice IPO shares. We use a sample of Chinese real estate IPOs, which offer a suitable laboratory thanks to their strong geographic investment patterns focused locally and a country with a highly heterogeneous openness across regions. Controlling for traditional firm- and issuing-specific characteristics of IPOs that are used for developed markets and Chinese-related features (i.e. listing location and state ownership), we find the evidence that companies investing in economically more open areas experience less IPO underpricing. Our results show great explanatory power and are robust to different specifications.

Original languageEnglish
Pages (from-to)325-351
Number of pages27
JournalJournal of Real Estate Finance and Economics
Issue number3
Early online date6 Jul 2017
Publication statusPublished - 1 Apr 2018

Bibliographical note

Publisher Copyright:
© 2017, The Author(s).


  • IPO underpricing
  • Real estate
  • Urban economic openness

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Urban Studies


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