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Institutional Allocation in Initial Public Offerings: Empirical Evidence

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Author Info
Reena Aggarwal (Georgetown University,)
Nagpurnanand R. Prabhala (University of Maryland, College Park,)
Manju Puri (Stanford University and NBER)
Abstract

We analyze institutional allocation in initial public offerings (IPOs) using a new data set of U.S. offerings between 1997 and 1998. We document a positive relationship between institutional allocation and day one IPO returns. This is partly explained by the practice of giving institutions more shares in IPOs with strong premarket demand, consistent with book-building theories. However, institutional allocation also contains private information about first-day IPO returns not reflected in premarket demand and other public information. Our evidence supports book-building theories of IPO underpricing, but suggests that institutional allocation in underpriced issues is in excess of that explained by book-building alone. Copyright The American Finance Association 2002.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 57 (2002)
Issue (Month): 3 (06)
Pages: 1421-1442
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Handle: RePEc:bla:jfinan:v:57:y:2002:i:3:p:1421-1442

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  1. Francis , Bill B & Hasan, Iftekhar & Sun, Xian, 2009. "Political connections and the process of going public: evidence from China," Research Discussion Papers 7/2009, Bank of Finland. [Downloadable!]
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  2. L. Cassia & G. Giudici & S. Paleari & R. Redondi, 2004. "IPO underpricing in Italy," Applied Financial Economics, Taylor and Francis Journals, vol. 14(3), pages 179-194, February. [Downloadable!] (restricted)
  3. Jay Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," NBER Working Papers 8805, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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