Abstract
Direct listing (DL) decouples capital raising from going public and bypasses underwriters. Theory and evidence from U.S. and U.K. markets show that (1) DL and IPO markets attract different types of firms. DL innovation caters to later-stage firms’ demand for public trading. (2) When adverse selection is severe, regulations are essential in shaping DL market participation and outcomes. (3) After DL innovation, firms and intermediaries enjoy welfare gains, while public investors may face higher risks. The results imply that better-developed private-capital and secondary-trading markets motivate DL innovation; imposing certification policies for investor protection promotes firm entry in the DL market.
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