Endogenous market choice, listing regulations, and IPO spread: Evidence from the London Stock Exchange

This study examines the endogenous market choice and its impact on underwriter spread if Alternative Investment Market (AIM) IPOs that meet Main Market (MM) listing requirements had issued equity in the MM during the 1995-2021 period. We find that the spread is 1.33% higher in the AIM than the MM for IPO listings that meet the MM listing requirements. This finding suggests that AIM companies, meeting the MM listing requirements, could have saved more than 100 pound million by going public through the MM than the AIM market. We also find that this spread differential is attributed to the issuing firms' market self-selection. We demonstrate that listing requirements in the MM have an impact on the gross spread. The Propensity score matching results show that AIM firms that meet the MM market listing requirements pay a 0.921% higher spread which is significant at a 1% level compared to the MM market IPOs.