The impact of industrial districts on the pricing of IPOs

This paper examines the impact that industrial districts-a concentration of industry peers in the same geographic area-have on the pricing of initial public offerings (IPOs). I provide robust evidence that firms going public in more concentrated districts are more heavily underpriced than other IPO firms. In general, the results support the notion that the competitive pressures within industrial districts raise the risk profile of IPOs and discourage voluntary disclosure of value-relevant information because of increased proprietary costs. There is also strong evidence to suggest that the increased underpricing of IPOs in industrial districts partially represents investor compensation for the location premium associated with more isolated areas.