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Strategic participation in IPOs by affiliated mutual funds: Thai evidence

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  • Saengchote, Kanis
  • Sthienchoak, Jananya

Abstract

Underwriters and co-managers play an important role in IPOs, but because they often have affiliated mutual funds, concerns about conflicts of interest can arise. On the one hand, they can use this affiliation for the benefit of their asset management business (the information advantage hypothesis); on the other hand, they can use mutual funds under their control to support their IPO clients (the quid pro quo hypothesis). Using mutual fund holding data between 2005 and 2016 and a sample of Thai IPOs during the same period, we find behavior consistent with the information advantage hypothesis in lead underwriter-affiliated funds, and the quid pro quo hypothesis in both. We also find evidence of strategic placements within fund family in captive (tax-deductible) funds targeted at retail investors, raising the possibility that the quid pro quo behavior may unintentionally be facilitated by public policy to encourage mutual fund investment.

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  • Saengchote, Kanis & Sthienchoak, Jananya, 2020. "Strategic participation in IPOs by affiliated mutual funds: Thai evidence," Pacific-Basin Finance Journal, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:pacfin:v:63:y:2020:i:c:s0927538x20302390
    DOI: 10.1016/j.pacfin.2020.101427
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