Jeffrey H. Harris [*]We analyze the initial listing decisions of IPOs that qualify for New York Stoc...

1. The Initial Listing Decisions of Firms That Go Public.
Jeffrey H. Harris [*]
We analyze the initial listing decisions of IPOs that qualify for New York Stock Exchange listing. We
find that IPOs are more likely to list on the exchange where their industry peers are listed. Further,
reverse LBOs and carveouts are more likely to choose the NYSE if the firm or their parent was
previously NYSE-listed. Consistent with avoidance of delisting costs, we find that smaller, riskier
firms tend to list on Nasdaq. Although direct issue costs are higher on the NYSE than on Nasdaq,
total issue costs do not differ across exchanges and are unlikely to affect the listing decision.
Historically, publicly held firms in the US began trading on the regional or over-the-counter markets
and, in some cases, eventually moved to the New York Stock Exchange (NYSE). However, the NYSE
changed its listing rules in 1983, making it easier for initial public offerings (IPOs) to meet minimum
listing requirements. Now that many large IPOs could list directly on the NYSE, the initial listing
decision became an important part of the IPO process. In this paper, we analyze the factors that
affect the initial listing decision.
We examine a sample of IPOs from 1991 to 1996 that either listed on the NYSE or met the NYSE's
minimum-listing requirements, but chose to list on the Nasdaq National Market (Nasdaq). Our
sample allows us to examine the initial listing decisions of firms for which NYSE listing was actually
a consideration. Of the 438 IPOs that meet our sample criteria, 337 (76.9%) listed on the NYSE. The
significant number of NYSE listings suggests that the change in listing rules and the NYSE's
increased marketing efforts have had an important effect on the listing decisions of IPO firms.
However, the fact that many NYSE-eligible IPOs continue to list on Nasdaq suggests that the
perceived costs and benefits of listing vary across firms.
We find that firms tend to list on the exchange where other firms in their industry are currently
listed. In addition, reverse LBOs and carveouts are more likely to list on the NYSE if the firm or
parent firm was listed on the NYSE prior to the LBO or carveout, respectively. These results suggest
that prior exchange relationships and exchange expertise are important considerations in the choice
of listing venue.
Smaller, riskier firms are more likely to list on Nasdaq. This finding suggests that firms avoid
expected delisting costs. The fact that small firms tend to list on Nasdaq may also suggest that
sponsorship is an important factor in the listing decision. However, we find no evidence that younger
firms, which would also benefit from sponsorship, are more likely to list on Nasdaq than on the
NYSE. Although direct issue costs are higher on the NYSE than on Nasdaq, total issue costs
(including underpricing) do not differ across listing venues and are therefore unlikely to affect the
listing decision.
Our research follows earlier empirical studies that find a positive stock price reaction to exchange
listing announcements (e.g., Sanger and McConnell, 1986; Grammatikos and Papaioannou, 1986;
Kadlec and McConnell, 1994). These studies generally conclude that NYSE listing increases liquidity
and may convey positive information about the firm. To analyze the motivations for listing decisions,
Cowan, Carter, Dark, and Singh (1992) compare the characteristics of firms that move from Nasdaq
to the NYSE with those that are NYSE-eligible, but choose to stay on Nasdaq. Their results suggest

2. that firms list on the NYSE to obtain a more liquid market for their stocks, but that the potential
costs and benefits of listing vary across firms. Our research contributes to this literature by
analyzing the initial listing decision. Analyzing initial listings should provide more powerful tests,
since all firms must make a listing decision at the time of an IPO. The initial listing decision also
involves factors, such as issue costs and parent-firm listings, that are not important in the decision to
switch exchanges. [1]
Our work also provides evidence related to the theoretical models of the listing decision in Foucault
and Parlour (1999) and Aggarwal and Angel (1999). Foucalt and Parlour develop a model in which
two exchanges compete for listings on the basis of listing fees and trading costs. Their model
suggests that large IPOs will list on the exchange with lower trading costs and higher listing fees.
Our findings support this prediction. Aggarwal and Angel model the tradeoff between high trading
cost, high service markets and low trading cost, low service markets. They predict that small,
relatively unknown firms will list on the high-cost dealer market to obtain the benefits of market-
maker sponsorship. Our results provide only limited support for this model. Although small firms are
more likely to list on Nasdaq, as Aggarwal and Angel predict, we find no evidence that younger firms
prefer Nasdaq over the NYSE.
The rest of the paper is organized as follows. Section I provides a background on IPO listings and
discusses the change in NYSE listing rules. In Section II, we discuss potential factors in the initial
listing decision and provide empirical predictions. Section III describes the data and provides a
comparison of IPO characteristics on the NYSE and Nasdaq. Results from a probit model of the
listing decision are described in Section IV. In Section V, we present tests for differences in issue
costs across exchanges. Section VI concludes.
I. Background on IPO Listings
Until 1983, the number of potential listing venues for newly public firms in the US was limited. This
lack of alternatives resulted from NYSE listing requirements on the number of publicly held shares
and round-lot shareholders. By definition, firms that issue equity for the first time find it difficult to
meet these restrictions, since they have no publicly traded shares prior to the issue. Instead, these
firms listed initially on Nasdaq or the regional markets.
Figure I shows the proportion of US IPOs between 1981 and 1996 (excluding rights and unit
offerings) that listed on various US markets. Panel A shows the proportion of listings for all IPOs.
Panel B shows the proportion of listings for IPOs with offer proceeds greater than $40 million. The
graphs illustrate the limited listing venue choices available prior to 1983. For example, during 1981
and 1982, 386 of the 398 IPOs identified by SDC (97%) listed on Nasdaq.
In 1983, the NYSE changed its listing rules to make initial listing on the Big Board a viable
alternative for some large IPOs. The minimum listing requirements remained the same as for other
firms, but the NYSE allowed the underwriter to certify that the IPO would meet share ownership and
distribution standards. Panel A shows how the proportion of IPOs listed on the NYSE increased after
the rule change. The number of IPOs listed directly on the NYSE grew from only 2.5% in 1983 to
over 30% in 1989. Panel B shows that the NYSE's share of large IPOs increased substantially after
1983, reaching as high as 80% in 1989. During the 16-year sample period, there were 6,679 IPOs
listed in the Securities Data Company (SDC) database, of which 5,187 (77.7%) listed on Nasdaq,
1,183 (17.7%) listed on the NYSE, and 309 (4.6%) listed on the American Stock Exchange (Amex) or
regional exchanges.
Although the number of IPOs listing directly on the NYSE increased dramatically during the 1980s,

3. it was not until the early 1990s that the NYSE began to aggressively target IPO firms for listing.
From 1981 to 1990, the NYSE had a net gain of only 204 listed firms. However, from 1991 through
1996, the number of NYSE-listed firms increased by 1,133, including over 700 IPOs (NYSE Fact
Book, 1996). The sample in this paper covers the period from 1991 through 1996 and represents a
time of both heavy activity in the IPO market and rapid growth on the NYSE.
II. Listing Decision Criteria
When a company goes public, managers who are acting in the best interests of shareholders will
choose the issue characteristics (i.e., contract type, underwriter, etc.) that maximize shareholder
wealth. With the NYSE rule change in 1983, the choice of listing venue became an additional
consideration for these managers. Although firm managers may have preconceived ideas about the
appropriate exchange for their stock, they likely weigh the costs and benefits of each exchange
based on input from the underwriters, auditors, lawyers, and other parties involved with the issue.
Potential criteria in the listing decision are discussed and summarized in Table I.
A. Listing Requirements
Both the NYSE and Nasdaq require prospective listing firms to meet a set of quantitative
requirements. Panel A of Table II lists the requirements that were in effect during our sample period
on the NYSE and the Nasdaq National Market. As the table shows, these requirements are more
restrictive on the NYSE than on Nasdaq. For example, the NYSE requires firms to have 1.1 million
publicly held shares with a market value of at least $40 million. The corresponding requirements on
Nasdaq are 500,000 publicly held shares valued at $3 million. The NYSE also requires pretax income
of $6.5 million over the previous three years. In comparison, Nasdaq requires only $750,000
annually under Alternative 1 and has no income requirement under Alternative 2. Since only firms
that meet the NYSE's listing requirements actually face a choice between NYSE and Nasdaq listing,
we consider only this subset of IPOs.
Meeting the quantitative requirements discussed above does not guarantee that a firm will be
approved for NYSE listing. The NYSE weighs factors such as the company's position and stability in
its industry, the composition of its board of directors and audit committee, and the voting rights
associated with the securities (NYSE Fact Book, 1996). The NYSE also requires the underwriter to
certify that the IPO will meet share ownership and distribution standards. Due to data limitations,
we do not test the relative importance of these additional factors in the listing decision. However, we
expect these factors to affect only a small number of IPOs. Private conversations with the NYSE
listings department suggest that underwriter certification has rarely, if ever, been denied a firm that
met the other quantitative listing requirements.
B. Initial and Annual Listing Fees
To list on either the NYSE or Nasdaq, firms must pay both initial and annual listing fees. These fees
generally increase with the number of shares listed and are substantially higher on the NYSE than
on Nasdaq. For comparison, consider an issuer offering five million shares at $16 per share. If listed
on the NYSE, this issuer would pay initial listing fees of $84,600 (0.1058% of offer value) and annual
listing fees of $16,170 (0.0202%). For a Nasdaq listing, this issuer would pay initial listing fees of
only $30,000 (0.0375%) and annual listing fees of only $7,250 (0.009%). [2] All else equal, we expect
the probability of NYSE listing to be inversely related to the difference in listing fees between
exchanges.
C. Exchange Expertise and Related-Firm Listings

4. Anecdotal evidence suggests that firms tend to list on the exchange that they believe has expertise
or experience in trading similar securities. For example, despite the NYSE's increased efforts to
attract the largest technology companies, Nasdaq is generally considered the primary listing venue
for these firms. This may reflect a perception by listing firms that knowledge about a particular firm
or industry is beneficial to market makers. Thus, we expect listing choices to be clustered by
industry. Further, if the listing firm has previously traded on one of the exchanges (a reverse LBO)
or has an exchange-listed parent firm (a carveout), managers may simply choose to list on the
market with which they have a previous relationship.
D. Continued Listing Requirements and the Expected Costs of Delisting
In addition to the initial listing requirements discussed above, the NYSE requires firms to meet a set
of less restrictive requirements for continued listing. Although infrequent (30 firms were delisted in
1998), delistings, as a result of dropping below these requirements, can be costly for listed firms.
First, a delisting reverses the listing choice of the firm and results in a loss of the initial listing fees
paid to the exchange. Second, delistings are associated with negative stock price reactions. For
example, Sanger and Peterson (1990) report average abnormal returns of -8.5% at NYSE and Amex
delisting announcements. While this negative stock price reaction might reflect a decrease in
liquidity, McConnell, Dybevik, Haushalter, and Lie (1996) point out that delistings may also signal
the exchange's weakened confidence in the firm's ability to meet requirements for continued listing.
To avoid the http://goo.gl/7anIuW negative effects of delisting, firm managers might delay listing on
the NYSE until they are confident that th e firm can maintain listing eligibility. Therefore, we expect
firms that are more likely to drop below the NYSE's requirements for continued listing to list on
Nasdaq. This includes small firms that only marginally qualify for NYSE listing, risky firms, and firms
valued primarily from growth options.
E. Visibility and Sponsorship
Merton (1987) derives a model in which the market value of a firm increases with the level of
investor recognition. When applied to the listing venue choice, this model suggests that managers
should choose to list on the market that provides the greatest visibility and largest investor base.
Managers do, in fact, cite visibility and improved access to investors as among the most important
factors in the listing decision (Baker and Johnson, 1990).
An important feature of the Nasdaq market that may affect investor base is sponsorship, whereby
Nasdaq market makers promote the securities they trade to investors. [3] According to the Nasdaq
Fact Book (1996), "...Nasdaq market makers commit to your company by taking sizable positions in
their proprietary accounts, merchandising through their institutional contacts and their own or
affiliated retail networks, and maintaining continuous research coverage."
Aggarwal and Angel (1999) suggest that the incentives to provide sponsorship derive from wider
bid-ask spreads and the market maker's ability to internalize order flow on Nasdaq. Their model
predicts that sponsorship should be most valuable for firms that are relatively unknown among
investors. Since these are likely to be the smallest and youngest companies, we hypothesize that
such firms will be more likely to list on Nasdaq than on the NYSE. [4]
F. Liquidity and Future Financing
For many firms, the initial public offering is the first in a series of public offerings. For firms that use
this "seasoning strategy," liquidity could be an important consideration in the initial listing decision.
For example, Amihud and Mendelson (1986) argue that firms can reduce their cost of capital

5. through financial policies that increase liquidity. When applied to the listing decision, these
arguments suggest that managers should choose to list on the exchange that provides the highest
liquidity.
Several studies provide empirical evidence of differences in liquidity across exchanges. Although
they do not completely agree, these studies generally report higher levels of liquidity on the NYSE
than on Nasdaq (e.g., Huang and Stoll, 1996) and an increase in liquidity when firms move from
Nasdaq to the NYSE (e.g., Christie and Huang, 1994; Barclay, 1997). Although these results suggest
that most firms could improve liquidity by listing initially on the NYSE, this benefit is likely to be
most important for firms that plan to return to the capital markets. Therefore, we expect firms that
follow a seasoning strategy to be more likely to list on the NYSE than on Nasdaq.
III. Data and Sample Characteristics
We use the Securities Data Company's Global New Issues database (SDC) to collect the complete
sample of firm-commitment initial public offerings of common stock in the US from 1991 to 1996.
We exclude unit and rights offers and issues by foreign firms, investment funds, and real estate
investment trusts. Then, we collect additional data from numerous sources--data on offer
characteristics and underwriter identity from SDC; data on firm characteristics and aftermarket
prices from Compustat and CRSP; and income data for the previous three years from the firms' S-1
filings. Also, we identify incorporation dates using SP Stock Reports, Moody's Handbook, and SP
Corporate Records. Finally, where possible, we obtain Carter-Manaster rankings for underwriters
from Carter, Dark, and Singh (1998).
Since we are interested in the choice of listing venue, we restrict the sample to IPOs that either
listed on the NYSE, or met the NYSE's listing requirements, but chose to list on Nasdaq (SDC
exchange codes NASDAQ or NYSE). Panel B of Table II lists the proxy variables and minimum values
used to restrict our sample. To be included in the sample, Nasdaq IPOs must have at least 1.1 million
offered shares, $40 million in offer proceeds, and $40 million in total assets prior to the issue. We
further require Nasdaq IPOs to have at least $6.5 million in pretax income during the previous three
years, including either $4.5 million in the previous year and positive amounts in the two prior years,
or $2.5 million in the previous year and $2 million in each of the two prior years. These restrictions
give us a final sample of 438 IPOs.
Panel A of Table III lists the number of IPOs in the final sample by year and exchange. Of the 438
sample IPOs, 337 (76.9%) listed on the NYSE and 101 (23.1%) listed on Nasdaq. There were at least
56 IPOs in each sample year, with the proportion of NYSE-listed IPOs ranging from 71% in 1991 to
82% in 1992. Panel B of Table III shows that 35% of IPOs with proceeds less than $100 million listed
on Nasdaq, while over 93% of IPOs larger than $200 million, and 100% of IPOs larger than $400
million listed on the NYSE.
Table IV provides summary statistics for offer characteristics (Panel A) and firm characteristics
(Panel B). The table lists the results for the full sample and for the subsamples of NYSE and Nasdaq
issues. For the last three variables, the table lists the proportion of sample firms in the stated
category and the reported p-value is from a test of the restriction that proportions are equal across
exchanges. For all other variables, the table lists the mean [median] and the reported p-value is from
a test of the restriction that means [medians] are equal across exchanges.
Even after limiting the sample to NYSE-eligible IPOs, we see that significant differences exist
between the two exchanges. NYSE IPOs are significantly larger than Nasdaq issues, with mean offer
proceeds of $170 million and mean offered shares of 9.3 million. The comparable numbers on

6. Nasdaq are $76 million and 4.9 million shares. NYSE IPOs are also underwritten by higher quality
underwriters, as reflected by Carter-Manaster rankings (see Carter, Dark, and Singh, 1998) and
underwriter market share. Medians differ significantly across exchanges for all of the variables in
Panel A. Means differ significantly in all cases except the CarterManaster rankings.
The characteristics of issuing firms (Panel B) also differ across exchanges. Firms that issue IPOs on
the NYSE have significantly higher total assets and market values than do firms listing on Nasdaq.
The average time from incorporation to IPO is significantly greater on the NYSE (20.38 years) than
on Nasdaq (12.34 years). However, the median firm age of six years is the same for both exchanges.
NYSE IPOs are also less risky, with a mean aftermarket standard deviation of 5.86% compared to 6.9
1% for Nasdaq IPOs. Finally, there is weak evidence that NYSE IPOs are brought to market by firms
with fewer growth opportunities. Although the mean market-to-book ratio is 1.69 and does not differ
significantly across exchanges, the median market-to-book ratio is significantly lower for NYSE IPOs
(1.37) than Nasdaq IPOs (1.57).
The sample proportions in Panel B show that NYSE IPOs are more likely to result from equity
carveouts and reverse LBOs. [5] The NYSE sample includes 23.4% carveouts and 18.4% reverse
LBOs. In comparison, the Nasdaq sample includes only 6.9% carveouts and 9.9% reverse LBOs. Both
of these proportions differ significantly across exchanges at the 5% level. The proportion of IPOs
backed by venture capitalists is 21.7%, and does not differ significantly across exchanges.
To study related-firm listings, we begin by examining the previous listing venues of the reverse LBOs
and carveouts in our sample. Of the 86 carveouts, 76 had NYSE-listed parent firms and 73 (96%) of
these listed on the NYSE. Six of the remaining ten carveouts listed on the NYSE and four listed on
Nasdaq. Of the 72 reverse LBOs in our sample, 54 involved firms that were previously listed on the
NYSE and 51 (94%) of these listed on the NYSE. Eleven of the remaining 18 reverse LBOs listed on
the NYSE and seven listed on Nasdaq. Thus, IPOs associated with carveouts and reverse LBOs are
more likely to list on the NYSE if the related firm was listed on the NYSE.
Table V presents the frequency of initial listings on the NYSE and Nasdaq by industry. For each
industry, the table indicates whether the proportion of NYSE-listed IPOs is equal to the overall
sample proportion (76.9%). We define industries in two ways: 1) using SDC's industry definitions to
identify the technology firms in the sample and 2) using Fama and French's (1997) industry
definitions based on four-digit SIC codes.
In Panel A, the results for technology firms provide only weak evidence that technology IPOs are
more likely than other firms to list on Nasdaq rather than on the NYSE. Of the 63 technology firms
identified in the sample, 42 (66.7%) listed on the NYSE. Although more than half the technology
firms in the sample list on the NYSE, this proportion is significantly lower than the overall sample
proportion of NYSE-listed firms. Within the technology categories, the highest concentrations of
Nasdaq listings are in the computer equipment and communications industries, where 45.5% of IPOs
are Nasdaq listed. In contrast, only 14.3% of NYSE-eligible biotechnology firms listed on Nasdaq.
Panel B of Table V presents the results based on Fama and French's (1997) industry definitions. The
most notable industry concentrations on the NYSE occur in the consumer goods, apparel, medical
equipment, steel works, electrical equipment, petroleum and natural gas, insurance, and trading
industries. Over 90% of these firms listed on the NYSE. The most notable concentrations on the
Nasdaq market occur in the computer, business supplies, and transportation industries, where at
least 50% of the sample IPOs listed on Nasdaq.
To identify firms that follow seasoning strategies, we analyze follow-on offers made during the first

7. 24 months after the IPO. We identify seasoned equity offerings (SEOs) using SDC. Table VI provides
summary data for the number of SEOs, offer proceeds, and offer proceeds scaled by IPO proceeds.
Of the 438 IPOs, 143 (32.6%) had at least one SEO within 24 months of the IPO. The proportion of
firms involved in at least one SEO was higher on Nasdaq than the NYSE (41.6% compared to 30%).
However, we find no statistically significant difference across exchanges in the mean number of
SEOs, mean offer proceeds, or mean scaled offer proceeds. These results suggest that seasoning
strategies are unlikely to be an important factor in the initial listing decision.
IV. The Listing Decision
Using a probit model for the initial listing decision, we analyze the relative importance of several
potential listing-decision criteria and the ability of these factors to jointly explain the initial listing
decision. The probit model takes the form of:
Prob(NYSE = 1) = [phi]([gamma]'Z) (1)
where [phi](*) denotes the standard normal distribution, [gamma] is a vector of coefficients, and Z is
a vector of explanatory variables. The explanatory variables are the log of Market Value,
Aftermarket Standard Deviation, Market-to-Book, Scaled Seasoned Offer Proceeds, Firm Age, Listing
Fee Difference, NYSE Industry Market Share, and dummy variables identifying reverse LBOs,
carveouts, and technology firms.
Listing Fee Difference is the difference in first-year percentage listing fees between the NYSE and
Nasdaq, where we define first-year percentage listing fees as the initial listing fee plus the first-year
annual listing fee divided by offer proceeds. To test the importance of related-firm listings, we
include dummy variables related to reverse LBOs and carveouts. [LBO.sub.NYSE] equals one if the
reverse LBO involves a firm previously listed on the NYSE, and zero otherwise. For all other reverse
LBOs, [LBO.sub.Other] equals one. We define [Carveout.sub.NYSE] and [Carveout.sub.Other] in the
same way for carveouts with NYSE parent firms and non-NYSE parent firms, respectively. We
include NYSE Industry Market Share, the technology firm dummy variable, and industry dummy
variables as proxies for peer-firm listings. The technology firm dummy variable is equal to one if the
firm is in one of SDC's technology industries. We define industry dummy variables based on the
Fama and French (1997) four-digit SIC code clas sification. [6] We define NYSE Industry Market
Share as the number of NYSE-listed firms in the same industry as the IPO divided by the total
number of Nasdaq and NYSE-listed stocks in that industry as of December 31st in the year prior to
the IPO.
Table VII provides the results from alternative specifications of the probit model. For each
specification, the table lists a pseudo [R.sup.2], which we define as one minus the ratio of the
computed log-likelihood to the log-likelihood of a model in which all slopes equal zero. The pseudo
[R.sup.2] ranges from 8.69% for the model that includes only firm size, to 31.38% for the full-
variable specification.
The coefficient on market value is positive and significant in every specification, suggesting that
smaller firms are more likely to list on Nasdaq than on the NYSE. The coefficient on Aftermarket
Standard Deviation is also negative and significant in Models 2 through 5. These results are
consistent with the hypothesis that firms with a higher likelihood of falling below the NYSE's
minimum listing requirements are more likely to list on Nasdaq. However, the coefficient on
Standard Deviation is not significant in the model that includes industry dummy variables (Model 6).
This suggests that the significance of firm risk could be related to industry clustering in the listing
decision. Although the negative coefficient on Market-to-Book is consistent with the delisting costs

8. hypothesis, it is not significant in any of the specifications.
Our finding that small firms are more likely to list on Nasdaq could also be interpreted as evidence
that market-maker sponsorship is an important factor in the listing decision (Aggarwal and Angel,
1999). However, we find no evidence that younger firms choose Nasdaq over the NYSE. Although
the coefficient on Firm Age is positive, it is not significant after we control for other factors. Thus,
our findings are consistent with the expected delisting costs hypothesis, but provide only weak
support for the sponsorship hypothesis.
After controlling for other factors, seasoning strategies appear to have little effect on the initial
listing decision. The coefficient on Seasoned Offer Proceeds is insignificant in every specification.
Thus, it appears that firms with high levels of seasoned equity financing are no more likely than
other firms to seek out the potential liquidity benefits of the NYSE. The coefficient on Listing-Fee
Difference is also insignificant, suggesting that, after controlling for other factors, the difference in
first-year listing fees does not affect the listing decision.
The important role of related-firm listings is evident in the results for reverse LBOs and carveouts.
Carveouts are more likely to list on the NYSE if the parent firm is NYSE-listed. Reverse LBOs are
more likely to list on the NYSE if the firm was listed on the NYSE prior to the LBO. There is no
evidence that carveouts or reverse LBOs concentrate on either the NYSE or Nasdaq if the related
firm was not NYSE-listed.
Results based on industry proxies confirm the influence of peer-firm listings. The coefficient on
NYSE Industry Market Share is positive and significant, which suggests that IPO firms tend to list on
the exchange where their peer firms are currently listed. In addition, the specification that includes
industry dummies suggests that IPO listings cluster by industry. A likelihood ratio test rejects the
restriction that all industry-dummy coefficients are equal. We also find that technology firms are
more likely to list on Nasdaq. Combined with the results for reverse LBOs and carveouts, these
findings suggest that prior exchange relationships and perceived exchange expertise play an
important role in the listing decision.
To determine whether model specification or sample selection affect our results, we perform several
robustness checks. Because we measure aftermarket standard deviation and the seasoned offer
variable after the IPO date, we exclude these variables and re-estimate the model. Our conclusions
about the remaining variables are unchanged. To provide tighter restrictions on the Nasdaq sample,
we re-estimate the model, including only those Nasdaq IPOs that exceeded the tenth percentile of
NYSE IPOs on each of the listing-requirement proxies. We also re-estimate the model excluding IPOs
larger than $200 million and excluding reverse LBOs and carveouts. In all cases, the results are
robust. [7]
V. The Costs of Going Public
In addition to the listing criteria discussed above, firms could consider differences in issue costs
when making the listing decision. To address this issue, we test whether the costs of going public
differ across markets. Following Lee, Lochhead, Ritter, and Zhao (1996), we examine both direct
issue costs and underpricing. Direct costs consist of the underwriter spread and other direct
expenses. We define the underwriter spread as the percentage difference between the offer price
and the price received by the issuer. Other direct expenses include listing and registration fees,
legal and auditing fees, the costs of preparing registration statements, etc. We define underpricing
as the percentage price change from the offer price to the closing price on the first day of trading.

9. The costs of going public may differ across exchanges for several reasons. As discussed in Section II,
initial listing fees are substantially higher on the NYSE than on Nasdaq. Underwriter fees may differ
across exchanges if listing on a particular exchange provides prestige or promotional activities that
attract a larger potential investor base. This exchange-related promotion could reduce the
underwriter's marketing costs and lead to reduced underwriter fees. Affleck-Graves, Hegde, Miller,
and Reilly (1993) note that underpricing may differ across exchanges if listing on the NYSE provides
quality certification that is not provided by a Nasdaq listing. Credible certification reduces investor
uncertainty about the value of the offer and could, in turn, result in lower underpricing.
Table VIII presents univariate summary statistics for the costs of going public. Both mean and
median direct issue costs are significantly lower on the NYSE than on Nasdaq. The difference is
driven primarily by lower underwriter spreads. The average underwriter spread is 6.23% on the
NYSE, compared to 6.78% on Nasdaq. Although the mean value of direct expenses does not differ
across exchanges, median direct expenses are significantly lower on the NYSE (1.11%) than on
Nasdaq (1.48%). Mean underpricing is also lower on the NYSE (9.33%) than on Nasdaq (12.32%).
However, median underpricing does not differ significantly across exchanges. By combining direct
issue costs and underpricing, we find that total issue costs are significantly lower on the NYSE with
a mean (median) of 17.15% (13.60%) compared to 20.70% (15.67%) on Nasdaq.
Although Table VIII suggests that both direct issue costs and total issue costs are lower on the NYSE
than on Nasdaq, these results do not control for other variables that affect issue costs. We test for
differences in issue costs after controlling for these factors using OLS regressions. The explanatory
variables are the log of Offer Proceeds, Underwriter Market Share, Aftermarket Standard Deviation,
and dummy variables that identify venture backed issues, reverse LBOs, and carveouts. We express
issue costs as:
Issue [Cost.sub.i] = [[beta].sub.0] + [[beta].sub.1] * Ln([OfferProceeds.sub.i]) + [[beta].sub.2] *
[UWMarketShare.sub.i] + [[beta].sub.3] * [StdDeviation.sub.i] + [[beta].sub.4] *
[VentureBacked.sub.i] + [[beta].sub.5] * [LBO.sub.i] + [[beta].sub.6] * [Carveout.sub.i] +
[[beta].sub.7] * NYSE + [[epsilon].sub.i] (2)
Offer proceeds should capture any economies of scale and also serve as a proxy for ex ante
uncertainty about the value of the offer. Previous researchers have found that this variable to be
inversely related to issue costs (see Beatty and Ritter, 1986; Ritter, 1987). We include aftermarket
standard deviation as an additional proxy for ex ante uncertainty. This variable should be positively
related to issue costs. We include underwriter market share as a proxy for underwriter quality. If
underwriters can certify the quality of the offer, then higher quality underwriters should be
associated with reduced underpricing (see Carter and Manaster, 1990). We identify venture backed
issues by a dummy variable that equals one if the IPO is backed by venture capital and zero
otherwise. We identify reverse LBOs and carveouts in the same way. Megginson and Weiss (1991)
report a negative relation between venture capital backing and underpricing. Muscarella and
Vetsuypens (1989) find that reverse LBOs are less underpriced than other IPOs. We also expect
carveouts to be associated with less uncertainty than other IPOs, resulting in lower issue costs.
Table IX presents the results from our OLS regressions. We estimate the model for each cost
component, for total direct costs, and for total direct and indirect issue costs. Consistent with
economies of scale, we find that total direct costs are negatively related to offer size. This result also
holds for the gross spread and direct expense components of total direct costs. However, the
coefficient on offer size is not significant in the underpricing regression and is only marginally
significant in the total issue cost regression (p-value=0.094). The lack of a significant relation
between offer size and underpricing contrasts with previous research. It is probably explained by the

10. fact that our sample is limited to large IPOs.
Consistent with previous research, we find that underpricing is positively and significantly related to
risk. However, direct issue costs do not appear to be related to aftermarket standard deviation. The
coefficient on underwriter market share is positive and significant in the underpricing and total cost
regressions, which suggests that higher quality underwriters are associated with increased issue
costs. This result does not support the underwriter certification hypothesis, but it is consistent with
Beatty and Welch (1996), who find a positive relation between underwriter quality and issue costs in
the 1990s.
Also consistent with Muscarella and Vetsuypens (1989), we find that reverse LBOs are associated
with significantly lower issue costs than are other IPOs. This result holds for gross spreads, direct
expenses, and underpricing. Although carveouts are also associated with reduced underpricing, total
issue costs for these issues do not differ from the costs incurred for other IPOs. Venture-capital
backing does not appear to significantly affect issue costs in this sample.
To compare issue costs across exchanges, we focus on the dummy variable for NYSE listing.
Although gross spreads are significantly lower for NYSE IPOs, other expenses and total direct costs
are significantly higher on the NYSE than on Nasdaq. Consistent with Affleck-Graves et al. (1993),
we find no evidence that underpricing differs between the NYSE and the Nasdaq National Market.
Further, while the NYSE dummy-variable coefficient is negative in the total issue cost regression, it
is not statistically significant (p-value=0.503). Thus, although firms may consider differences in
direct issue costs, total issue costs are not likely to be a factor in the choice of listing venue. 8
VI. Conclusion
In 1983, the NYSE developed special listing procedures that made it possible for some large IPOs to
list directly on the NYSE. Since this rule change, the number of IPOs listing directly on the NYSE
has increased dramatically. For example, according to the SDC Global New Issues database, two
IPOs listed on the NYSE in 1982, but over 200 IPOs listed on the NYSE in 1993. This study
documents the rapid growth in IPO listings on the NYSE since this rule change and analyzes the
factors that explain the initial listing decisions of IPO firms.
We examine a sample of 438 IPOs from 1991 to 1996 that either listed on the NYSE, or met the
NYSE's minimum listing requirements but chose to list on Nasdaq. Of these IPOs, 337 (76.9%) listed
on the NYSE. The significant number of NYSE listings suggests that the change in listing rules and
the NYSE's increased marketing efforts have had an important effect on the listing decisions of IPO
firms. However, a substantial number of NYSE-eligible IPOs continue to list on Nasdaq, a result that
suggests that the costs and benefits of listing vary across firms.
Probit results show that smaller firms and riskier firms are more likely to list on Nasdaq than on the
NYSE. These results are consistent with the avoidance of expected delisting costs and the tradeoff
between market quality and listing fees modeled in Foucault and Parlour (1999). Small firms might
also list on Nasdaq to capture the benefits of market-maker sponsorship. However, we find no
evidence that younger firms, which would also benefit from sponsorship, are more likely to list on
Nasdaq than on the NYSE.
Peer-firm and related-firm listings appear to be important factors in the choice of listing venue.
Firms tend to list on the exchange where their industry peers are listed, and reverse LBOs and
carveouts are more likely to list on the NYSE if the firm or parent firm was listed on the NYSE prior
to the LBO or carveout, respectively. Follow-on offering strategies, listing fees, and issue costs do

11. not appear to be important considerations in the initial listing decision.
Our findings highlight the increase in competition for listings that has occurred during the 1990s.
Several US markets have responded to this competition with proposals and policy changes designed
to attract new listings. For example, the merger of Nasdaq and Amex attempted to create two
market structure choices in one "market of markets." In an effort to attract new listings, the NYSE
also recently approved changes to its Rule 500 and its allocation policy. The changes to Rule 500,
approved by the SEC in July of 1999, give NYSE firms more freedom to voluntarily delist (Wall Street
Journal, 1999). The changes to the NYSE's Allocation Policy, implemented in March of 1997, give
listing firms more input into the selection of their specialist unit (Securities and Exchange
Commission, 1998). [9] These changes are likely to play a significant role in future listing decisions
as firms trade off the costs and benefits of alternative listing venues.
This paper has benefited from numerous comments and suggestions by the Editors and two
anonymous referees. We also thank Kirsten Anderson, Jeff Bacidore, Bill Christie, Marc Lipson,
Ananth Madhavan, Bill Megginson, Jeff Netter Phil Owen, Annette Poulsen, Paul Schultz, Joe Sinkey
Steve Smith, George Sofianos, Avanidhar Subrahmanyam, Kent Womack, seminar participants at
Arizona State University, Nasdaq, Syracuse University the University of Notre Dame, and the
Federal Reserve Bank of Atlanta for helpful comments, Jim Hester for research assistance, and
Sandra Sizer Moore for editorial comments. Any remaining errors are the joint responsibility of the
authors.
(*.) Shone A. Corwin is an Assistant Professor in the Terry College of Business at the University of
Georgia. Jeffrey H. Harris is an Assistant Professor in the Mendoza College of Business at the
University of Notre Dame.
(1.) Affleck-Graves, Hegde, Miller, and Reilly (1993) also examine initial listing decisions, but focus
on underpricing and exchange certification. Corwin, Harris, and Lipson (2000) analyze liquidity
provision and trading activity following NYSE-listed IPOs.
(2.) We base listing fee estimates on the Nasdaq fee schedule effective 8/7/97 and the NYSE fee
schedule effective 8/4/95. On Nasdaq, original listing fees range from a base fee of $5,000 to a
maximum of $50,000. Annual listing fees range from $5,250 to $20,000. On the NYSE, initial listing
fees range from a base fee $36,800 to a maximum of $504,600. Annual listing fees range from S
16,170 to $500,000.
(3.) Managers of NYSE-listed firms often cite increased visibility as a motivation for NYSE listing.
However, Baker, Powell, and Weaver (1999) find that the increases in analyst coverage and
institutional shareholders commonly attributed to exchange listing are explained primarily by
growth in market capitalization rather than the listing itself.
(4.) See Ellis, Michaely, and O'Hara (2000) for a detailed analysis of market making activities by
underwriters of Nasdaq-listed IPOs.
(5.) We verify SDC's reverse LBO and carveout designations using Edgar and Standard and Poor's
International Directory of Company Histories. We retain the carveout designation if the IPO involves
a publicly traded parent company. We retain the reverse LBO designation if the firm was previously
traded on a US exchange.
(6.) We exclude dummy variables for industries in which only one exchange is represented and for
any industry represented by fewer than five sample firms. Results based on two-digit SIC codes are

12. similar.
(7.) We also test whether initial listing decisions were affected by reports of implicit collusion among
Nasdaq market makers (see Christie and Schultz, 1994; Christie, Harris, and Schultz, 1994). We find
no evidence that listing decisions changed after these findings were publicized.
(8.) Since listing fees are deterministic, we re-estimated the direct cost regression after subtracting
these fees. The results suggest that differences in direct costs are not limited to listing fees. To
control for self-selection biases, we also analyzed differences in issue costs using a two-stage self-
selection model (Maddala, 1983). The coefficient on the selectivity variable (Inverse Mills Ratio) was
insignificant in every issue cost specification, suggesting that the reported OLS coefficients are
unbiased.
(9.) See Corwin (2000) for an analysis of changes to the NYSE's allocation policy.
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[Graph omitted]
[Graph omitted]
Listing Decision Criteria and RelatedEmpirical Predictions
The table summarizes the criteria that affect the initial listing decision. For each criteria, the second
column lists related research and exchange regulations and the third column lists the associated
empirical predictions.
Criteria Related Research/Regulations
Initial Annual Listing Fees * NYSE Nasdaq Regulations
* Foucault and Parlour (1999)
Exchange Expertise and * Conventional Wisdom
Related-Firm Listings
Continued Listing Requirements * NYSE continued listing requirements,
and Expected Delisting Costs Sanger and Peterson (1990)
Visibility and Sponsorship * Merton (1987), Aggarwal and Angel
(1999)
Liquidity and Future Financing * Amihud and Mendelson (1986), Christie
and Huang (1994), Huang and Stoll
(1996), and Barclay (1997)

15. Criteria Empirical Predictions
Initial Annual Listing Fees * Negative relation between NYSE
listing and the difference in
listing fees across exchanges
* Large firms and large IPOs list
on the NYSE
Exchange Expertise and * Technology firms list on Nasdaq
Related-Firm Listings * Listings will cluster by industry
and firms will list on the exchange
where peer firms are listed
* Reverse LBOs will list on their
previous exchange
* Carveouts will list on the same
exchange as the parent firm
Continued Listing Requirements * Small firms, risky firms, and
and Expected Delisting Costs firms valued primarily from growth
options will list on Nasdaq
Visibility and Sponsorship * Small firms and young firms
will list on Nasdaq
Liquidity and Future Financing * Firms that expect to return
to the capital markets will
list on the NYSE
II. Minimum Listing Requirements and Sample Restrictions
Panel A lists the minimum listing requirements in effect during our sample period for domestic firms
on the NYSE and Nasdaq National Market (NMS). Listing requirements are from the NYSE Fact
Book (1996) and Going Public: The Nasdaq Stock Market (Nasdaq, 1996). Panel B lists the data
restrictions used in the analysis to identity NYSE-eligible IPOs. We obtain these variables from the
Securities Data Company's Global New Issues database and the firm's S-1 filing. Pretax income is

16. defined as net income after tax, plus taxes paid. Alternative 2 on the Nasdaq-NMS does not include
an income requirement.
Minimum Listing Requirements on the NYSE
and Nasdaq-NMS
Nasdaq-NMS Nasdaq-NMS
Alternative 1 Alternative 2
Aggregate Market Value of Publicly Held
Shares $3.0 m $15.0 m
Net Tangible Assets $4.0 m $12.0 m
Publicly Held Shares 500,000 1.0 m
Number of Shareholders 800 400
Pretax Income in the Preceding 3 Years $750,000/yr -
Number of Market Makers 2 2
NYSE
Aggregate Market Value of Publicly Held
Shares $40.0 m [a]
Net Tangible Assets $40.0 m
Publicly Held Shares 1.1 m
Number of Shareholders 2,000 [b]
Pretax Income in the Preceding 3 Years $6.5 m [c]
Number of Market Makers -
Sample Data Restrictions
Offer Proceeds $40.0 m
Total Assets Prior to the Issue $40.0 m
Offered Shares 1.1 m
Pretax Income in the Preceding Three

17. Years $6.5 m [d]
(a.)The market value requirement was $18.0 million prior to January 2, 1996.
(b.)This requirement refers to 2,000 round-lot shareholders. Both markets have alternative
shareholder requirements for large, actively traded firms. These alternatives do not apply to IPOs.
(c.)The Nasdaq-NMS requires $750,000 in pretax income in two of the preceding three years,
together with net income of $400,000 in two of the preceding three years. The NYSE restricts
consideration to firms that have been in existence for at least three years. The $6.5 million income
requirement must include either a) $4.5 million in preceding year and positive amounts in each of
the two prior years, or b) $2.5 million in the preceding year and $2.0 m in each of the two prior
years. Firms with market capitalization greater than $500 million can satisfy the alternative
requirement of $200 million in revenues together with $25 million in net income.
(d.)Following the NYSE, we require either a) $4.5 million pretax income in the preceding year and
positive amounts in each of the prior two years, or b) $2.5 million in the preceding year and $2.0
million in each of the two prior years.
Frequency of Initial Public Offerings by Exchange
The sample includes 438 firm-commitment IPOs between 1991 and 1996 that either listed on the
NYSE, or met the NYSE's initial listing requirements, but chose to list on Nasdaq. Data are from the
Securities Data Company's Global New Issues database. Panel A lists frequencies for sample IPOs by
year. Panel B lists frequencies for sample IPOs based on offer proceeds; offer proceeds equal offer
price multiplied by offered shares (excluding overallotment options).
Frequency of IPOs by Year
Year NYSE Nasdaq Total
1991 40 16 56
(71.4%) (28.6%) (100%)
1992 65 14 79
(82.3%) (17.7%) (100%)
1993 64 19 83
(77.1%) (22.9%) (100%)
1994 46 11 57
(80.7%) (19.3%) (100%)
1995 45 13 58
(77.6%) (22.4%) (100%)

18. 1996 77 28 105
(73.3%) (26.7%) (100%)
Total 337 101 438
(76.9%) (23.1%) (100%)
Frequency of IPOs by Offer Proceeds
Proceeds NYSE Nasdaq Total
[less than]$50 mil. 49 36 85
(57.6%) (42.4%) (100%)
$50 - $100 mil. 107 49 156
(68.6%) (31.4%) (100%)
$100 - $200 mil. 107 12 119
(89.9%) (10.1%) (100%)
$200 - $400 mil. 51 4 55
(92.7%) (7.3%) (100%)
[greater than]$400 mil. 23 0 23
(100.0%) (0.0%) (100%)
Summary Statistics for Firm and Offer Characteristics
The sample includes 438 firm-commitment IPOs between 1991 and 1996 that either listed on the
NYSE, or met the NYSE's initial listing requirements, but chose to list on Nasdaq. For Venture
Capital, Reverse LBO, and Carveout, the table lists the proportion of the sample with the given
characteristic. For these variables, the p-value is from a [[chi].sup.2] test for equality of proportions
across exchanges. For all other variables, the table lists the mean [median] value of each variable for
the full sample and for the NYSE and Nasdaq subsamples and the p-value is from a test for equality
of means [medians] across exchanges based on analysis of variance [a Wilcoxon rank-sum test]. We
define Offer Proceeds as offered shares multiplied by the offer price, where Offered Shares excludes
overallotment options. Underwriter Market Share equals the proportion of all IPO proceeds from
1991 through 1996 for which a particular underwriter served as lead underwriter. We obtain Carter-
Manaster Rankings for lead underwriters from Carter, Dark, and Singh (1998). Firm Age equals the
number of years from the incorporation date to the date of the IPO. We estimate Standard Deviation
based on five-day close-to-close returns over the first 100 trading days. We define Market-to-Book as
market value of equity plus book value of debt, divided by total assets. Market Value is the offer
price multiplied by shares outstanding as of the issue date.
Variable N All IPOs NYSE IPOs Nasdaq IPOs

19. Offer Characteristics
Offer Proceeds ($m) 438 148.21 169.96 75.64
[90.00] [186.70] [62.10]
Offered Shares (m) 438 8.26 9.27 4.89
[5.60] [6.12] [4.00]
Offer Price 438 16.86 17.31 15.36
[16.00] [17.00] [15.00]
Underwriter Market Share (%) 438 7.32 7.88 5.45
[4.81] [6.02] [3.95]
Carter-Manaster Ranking 425 8.81 8.83 8.77
[8.88] [8.88] [8.83]
Firm Characteristics
Total Assets ($m) 438 1607.45 2003.33 286.41
[365.81] [485.14] [181.80]
Market Value ($m) 438 547.00 638.34 242.23
[299.42] [349.20] [176.29]
Firm Age 433 18.55 20.38 12.34
[6.00] [6.00] [6.00]
Standard Deviation (%) 438 6.10 5.86 6.91
[5.77] [5.51] [6.71]
Market-to-Book 438 1.69 1.67 1.76
[1.41] [1.37] [1.57]
Venture Capital 438 21.69 21.96 20.79
(% in sample)
Reverse LBOs 438 16.44 18.40 9.90
(% in sample)

20. Carveouts 438 19.63 23.44 6.93
(% in sample)
Variable p-value
Offer Characteristics
Offer Proceeds ($m) 0.000
[0.000]
Offered Shares (m) 0.000
[0.000]
Offer Price 0.000
[0.000]
Underwriter Market Share (%) 0.000
[0.000]
Carter-Manaster Ranking 0.182
[0.002]
Firm Characteristics
Total Assets (Sm) 0.018
[0.000]
Market Value ($m) 0.000
[0.000]
Firm Age 0.014
[0.186]
Standard Deviation (%) 0.000
[0.000]
Market-to-Book 0.431
[0.005]
Venture Capital 0.803

21. (% in sample)
Reverse LBOs 0.043
(% in sample)
Carveouts 0.000
(% in sample)
IPO Firms by Industry
The sample includes 438 firm-commitment IPOs between 1991 and 1996 that either listed on the
NYSE, or met the NYSE's initial listing requirements, but chose to list on Nasdaq. For each industry
category, the table lists the number of firms in the sample and the percentage of firms in that
industry that listed on the NYSE. In Panel A, we define industries based on the Securities Data
Company's technology industry classifications. In Panel B, we define industries based on the four-
digit SIC code classification of Fama and French (1997), where industries with five or fewer
observations are grouped together as "Other". ** indicates that the proportion differs from the
population proportion at the 5% level based on a one-tailed test.
Industry Number of IPOs
SDC Technology Industries
Biotechnology 14
Communications 11
Computer Equipment 22
Electronics 13
General Technology 3
Total Technology Firms 63
Industries Based on Four-Digit SIC Codes
Recreational Products 6
Printing and Publishing 6
Consumer Goods 14
Apparel 12
Healthcare 19
Medical Equipment 8

22. Chemicals 9
Textiles 6
Construction 7
Steel Works, etc. 13
Machinery 13
Electrical Equipment 6
Automobiles and Trucks 12
Petroleum and Natural Gas 14
Utilities 8
Telecommunications 12
Business Services 32
Computers 7
Electronic Equipment 12
Business Supplies 10
Transportation 17
Retail 61
Restaurants, Hotel, Motel 15
Banking 17
Insurance 50
Trading 7
Other 45
Total IPOs 438
Industry % NYSE-Listed
SDC Technology Industries
Biotechnology 85.7
Communications 54.5

23. Computer Equipment 54.5 [**]
Electronics 76.9
General Technology 66.7
Total Technology Firms 66.7 [**]
Industries Based on Four-Digit SIC Codes
Recreational Products 83.3
Printing and Publishing 83.3
Consumer Goods 92.9
Apparel 100.0
Healthcare 63.2
Medical Equipment 100.0 [**]
Chemicals 77.8
Textiles 83.3
Construction 85.7
Steel Works, etc. 92.3
Machinery 76.9
Electrical Equipment 100.0
Automobiles and Trucks 75.0
Petroleum and Natural Gas 100.0 [**]
Utilities 87.5
Telecommunications 66.7
Business Services 71.9
Computers 42.9
Electronic Equipment 66.7
Business Supplies 50.0
Transportation 41.2 [**]

24. Retail 73.8
Restaurants, Hotel, Motel 66.7
Banking 70.6
Insurance 98.0 [**]
Trading 100.0
Other 64.4 [**]
Total IPOs 76.9
Seasoned Offers by IPO Firms
The sample includes 438 firm-commitment IPOs between 1991 and 1996 that either listed on the
NYSE, or met the NYSE's initial listing requirements, but chose to list on Nasdaq. We identify
seasoned offers by firms in the IPO sample using the Securities Data Company's Global New Issues
database. The table includes all seasoned offers of common stock within 24 months of the IPO.
Scaled seasoned offer proceeds equal total seasoned offer proceeds divided by IPO offer proceeds.
We calculate means across all IPO firms, including those that raised no seasoned equity. The p-value
results from a test of the restriction that means are equal across exchanges.
All IPOs NYSE IPOs Nasdaq IPOs
Number of Issuers 143 101 42
Total Number of Seasoned Offers 185 137 48
Total Seasoned Offer Proceeds ($m) 27,312 22,556 4,756
Mean Number of Seasoned Offers 0.42 0.41 0.48
Mean Seasoned Offer Proceeds ($m) 62.36 66.93 47.09
Mean Scaled Offer Proceeds (%) 57.93 55.43 66.27
p-value
Number of Issuers -
Total Number of Seasoned Offers -
Total Seasoned Offer Proceeds ($m) -
Mean Number of Seasoned Offers 0.379
Mean Seasoned Offer Proceeds ($m) 0.228
Mean Scaled Offer Proceeds (%) 0.421

25. Probit Model for Exchange Listing
The table lists the coefficients (p-values) from a probit model of the initial listing decision. The
sample includes 438 firm-commitment IPOs between 1991 and 1996 that either listed on the NYSE,
or met the NYSE's initial listing requirements, but chose to list on Nasdaq. The dependent variable
equals one if the IPO listed on the NYSE, and zero if the IPO listed on Nasdaq. We define Market
Value as shares outstanding after the offer multiplied by the offer price. NYSE Industry Market
Share equals the number of NYSE-listed firms in the same industry as the IPO, divided by the total
number of Nasdaq and NYSE-listed stocks in that industry as of December 31st in the year prior to
the IPO. We define industries as in Fama and French (1997). Standard Deviation is calculated using
five-day close-to-close returns over the first 100 trading days. Market-to-Book is market value of
equity, plus book value of debt, divided by total assets. Seasoned Offer Proceeds is the total dollar
amount of seasoned offers within 24 mo nths of the IPO scaled by IPO offer proceeds. Technology
Firm is a dummy variable equal to one if the firm is in one of the Securities Data Company's
technology industries. We define reverse LBO and carveout dummy variables according to whether
or not the firm or parent firm was listed on the NYSE prior to the issue. Firm Age equals the number
of years from the incorporation date to the IPO. We define first-year listing fees as the sum of the
initial listing fee and the first year's annual listing fee, divided by offer proceeds. Listing Fee
Difference equals the difference in first-year percentage listing fees between the NYSE and Nasdaq.
The [[chi].sup.2]-statistic (p-value) results from a test of the restriction that all industry dummy
variable coefficients equal zero.
1 2 3 4
Intercept -2.129 -1.508 -1.180 -1.567
(0.000) (0.007) (0.042) (0.010)
Ln (Market Value) 0.515 0.542 0.447 0.443
(0.000) (0.000) (0.000) (0.000)
Standard Deviation - -0.102 -0.095 -0.088
(0.001) (0.005) (0.010)
Market-to-Book - -0.099 -0.065 -0.034
(0.184) (0.409) (0.675)
Firm Age - 0.005 0.004 0.004
(0.135) (0.249) (0.279)
Seasoned Offer Proceeds - -0.036 -0.032 -0.020
(0.550) (0.606) (0.756)
Listing Fee Difference - 0.062 -0.057 -0.277
(0.957) (0.962) (0.817)

26. LBO*[PrevExchange.sub.NonNYSE] - - -0.380 -0.359
(0.243) (0.271)
LBO*[PrevExchange.sub.NYSE] - - 0.806 0.835
(0.011) (0.008)
Carveout*[Parent.sub.NonNYSE] - - -0.275 -0.268
(0.554) (0.570)
Carveout*[Parent.sub.NYSE] - - 0.824 0.867
(0.006) (0.005)
NYSE Industry MktShr - - - 0.955
(0.040)
Technology Firm - - - -
Industry Dummy Variables No No No No
Industry [[chi].sup.2] (p-value) - - - -
N 438 433 433 433
Pseudo-[R.sup.2] 0.0869 0.1407 0.1795 0.1886
5 6
Intercept -1.295 -1.981
(0.026) (0.004)
Ln (Market Value) 0.467 0.492
(0.000) (0.000)
Standard Deviation -0.089 -0.059
(0.009) (0.143)
Market-to-Book -0.043 -0.088
(0.596) (0.379)
Firm Age 0.004 0.004
(0.265) (0.391)

27. Seasoned Offer Proceeds -0.019 0.016
(0.763) (0.821)
Listing Fee Difference -0.131 -0.365
(0.913) (0.784)
LBO*[PrevExchange.sub.NonNYSE] -0.378 -0.605
(0.242) (0.119)
LBO*[PrevExchange.sub.NYSE] 0.829 0.930
(0.010) (0.008)
Carveout*[Parent.sub.NonNYSE] -0.194 -0.293
(0.683) (0.584)
Carveout*[Parent.sub.NYSE] 0.813 0.985
(0.007) (0.003)
NYSE Industry MktShr - -
Technology Firm -0.459 -
(0.026)
Industry Dummy Variables No Yes
Industry [[chi].sup.2] (p-value) - 63.032
(0.000)
N 433 433
Pseudo-[R.sup.2] 0.1898 0.3138
Summary Statistics for Issue Costs
The sample includes 438 firm-commitment IPOs between 1991 and 1996 that either listed on the
NYSE, or met the NYSE's initial listing requirements, but chose to list on Nasdaq. The table lists the
mean [median] value of each variable for the full sample and the NYSE and Nasdaq subsamples. The
p-value results from a test for equality of means [medians] across exchanges based on analysis of
variance [a Wilcoxon rank-sum test]. We define Underpricing as (first day closing price - offer
price)/offer price. Underwriter Spread equals the difference between the offer price and the price
paid to the issuing firm. Other Expenses include costs (excluding the underwriter spread) paid by
the issuer, such as legal and auditing expenses and listing and registration fees. SDC data for other
expenses is missing for eight IPOs. We define Total Direct Costs as the sum of underwriter spreads

28. and other expenses. Total Direct and Indirect Costs equal the sum of underpricing, underwriter
spreads, and other expenses. We state all ex penses as a percentage of offer proceeds.
Variable N All IPOs NYSE IPOs Nasdaq IPOs p-value
Direct Issue Costs:
Underwriter Spread (%) 438 6.36 6.23 6.78 0.000
[6.50] [6.25] [7.00] [0.000]
Other Expenses (%) 430 1.57 1.56 1.60 0.830
[1.21] [1.11] [1.48] [0.004]
Total Direct Costs (%) 430 7.94 7.80 8.38 0.003
[7.75] [7.51] [8.39] [0.000]
Underpricing (%) 438 10.02 9.33 12.32 0.047
[6.25] [5.88] [7.93] [0.212]
Total Issue Costs (%) 430 17.99 17.15 20.70 0.021
[14.00] [13.60] [15.67] [0.040]
Issue Cost Regressions
The table lists the coefficients (p-values) from OLS regressions of issue costs on firm and offer
characteristics. The sample includes 438 firm-commitment IPOs between 1991 and 1996 that either
listed on the NYSE, or met the NYSE's initial listing requirements, but chose to list on Nasdaq.
Direct Costs include underwriter spreads and other expenses. Underwriter Spread equals the
percentage difference between the offer price and the price paid to the issuing firm. Other Expenses
include legal and auditing expenses, listing and registration fees, and other expenses paid by the
issuer. SDC data for other expenses is missing for eight IPOs. Total Costs is the sum of direct costs
and underpricing. We define Underpricing as (first day closing price - offer price)/offer price. We
state all costs as a percentage of offer proceeds. We define Offer Proceeds as offered shares
(excluding overallotment options) multiplied by the offer price. Aftermarket Standard Deviation
equals the standard deviation of five-day close-to -close returns over the first 100 trading days.
Underwriter (UW) Market Share equals the proportion of all IPO proceeds from 1991 through 1996
for which a particular underwriter served as lead underwriter. Venture-Backed is a dummy variable
that equals one if the IPO was backed by venture capital and zero otherwise. Reverse LBO and
Carveout are dummy variables that equal one if the IPO is associated with a reverse LBOs or
carveout, respectively. NYSE is a dummy variable that equals one if the IPO listed on the NYSE and
zero otherwise. p-values appear in parentheses.
Gross Other Total Direct
Spread Expenses Costs Underpricing

29. Intercept 9.618 5.822 15.441 -3.445
(0.000) (0.000) (0.000) (0.439)
Ln (Offer Proceeds) -0.676 -1.016 -1.693 0.281
(0.000) (0.000) (0.000) (0.752)
UW Market Share 0.004 -0.001 0.003 0.278
(0.234) (0.929) (0.808) (0.020)
Standard Deviation 0.001 0.010 0.011 1.915
(0.938) (0.716) (0.699) (0.000)
Venture-Backed 0.027 0.061 0.091 1.105
(0.428) (0.667) (0.533) (0.462)
Reverse LBO -0.142 -0.301 -0.454 -3.980
(0.000) (0.058) (0.005) (0.017)
Carveout -0.125 -0.002 -0.126 0.000
(0.004) (0.987) (0.435) (0.999)
NYSE -0.162 0.544 0.381 -1.476
(0.000) (0.000) (0.009) (0.332)
N 438 430 430 438
Adj. [R.sup.2] 0.7743 0.2965 0.5389 0.1119
Total Direct and

30. Indirect Costs
Intercept 12.441
(0.006)
Ln (Offer Proceeds) -1.521
(0.094)
UW Market Share 0.294
(0.016)
Standard Deviation 1.120
(0.000)
Venture-Backed 1.218
(0.427)
Reverse LBO -4.484
(0.009)
Carveout -0.283
(0.867)
NYSE -1.031
(0.503)
N 430
Adj. [R.sup.2] 0.1270
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