Trademark and IPO underpricing

Abstract

Although trademarks are mentioned in many firms’ initial public offering (IPO) prospectuses, their influences on the IPO valuation process are underexplored. This paper studies the relationship between a firm's pre-IPO trademarks and its IPO underpricing. Using 4457 US IPOs during the period 1980–2018, we find that firms with a larger number of trademarks prior to the IPO date experience significantly less IPO underpricing. We employ a quasi-natural experiment brought about by the 1996 Federal Trademark Dilution Act and an instrumental variable approach to establish causality. Our findings suggest that trademarks help reduce information asymmetry among various IPO participants, leading to less underpriced IPOs.