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Direct Listing vs. IPO: The Anatomy of the Going-Public Market

This paper investigates firms’ going-public decisions and the welfare implications after direct listing (DL) innovation. Theory and evidence from the U.S. and U.K. markets show that (1) DL and IPO markets cater to different types of firms. Better-developed private capital and stock trading markets motivate DL innovation. (2) DL market is more vulnerable to breakdown. Certification intermediaries are essential in maintaining a well-functioning DL market, which leads to more public listings and improved social welfare. (3) Intermediaries enjoy welfare gains by attracting new clientele. The results highlight severe informational frictions in the going-public markets and have important policy implications.