Initial Public Offerings on the London Stock Exchange

  • Dimitris Kostas

Student thesis: Phd


This thesis examines the non-cash compensation paid to the underwriters/brokers during the flotation process and the IPO when-issued dealing market in one of the most successful and international stock exchanges around the world, the London Stock Exchange (LSE). The thesis consists of three essays that try to answer the following questions: Do IPO firms minimise their costs of going public by issuing warrants to their financial advisers? Does the when-issued dealing affect the setting of the offer price?The first essay examines the issue of warrants to brokers as part of their compensation package in non-underwritten offerings on the Alternative Investment Market of the LSE. The main finding is that IPO firms are able to make efficient decisions and choose the contract that minimises their costs. For companies that issue warrants to their brokers the total costs of going public are 22.74% (as a percentage of gross proceeds), but would have been 25.61% had they not issued them. This 2.87% reduction in costs is equivalent to 70.34% of the commission paid to the brokers by the IPO firms. The main source of this decrease in the costs is the lower underpricing the companies incur by granting warrants to their brokers.The second essay examines the use of non-cash compensation in underwritten IPOs. The findings suggest that firms that are cash constrained are more likely to issue warrants to their underwriters. In addition, underwriters appear to have the ability to time the issue of warrants because they include them as part of their compensation package when the market is doing well. Interestingly, warrant issuers are still able to minimise their costs of going public even under a very light regulatory setting underlying the use of non-cash compensation.The third essay examines the when-issued dealing in the Main Market of the LSE for an extensive period of time, 1996 to 2012. The main finding is that, in an institutional setting in which the when-issued dealing commences only after the allocation of shares and the offer price are announced, investors pay 'rents' to the underwriters in order to acquire IPO shares that will trade within the when-issued dealing. These 'rents' take the form of a higher offer price. In other words the when-issued dealing affects the setting of the offer price. For companies that have a when issued dealing the offer price is £3.4 but would have been 54% lower (£1.55) had these firms not had a when issued dealing.
Date of Award1 Aug 2014
Original languageEnglish
Awarding Institution
  • The University of Manchester
SupervisorArif Khurshed (Supervisor) & Brahim Saadouni (Supervisor)


  • IPOs, LSE, warrants, when-issued dealing

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