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Bank-affiliated institutional investors and IPO syndicates formation

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  • Pratobevera, Giuseppe

Abstract

By using institutional trading data in a sample of US IPOs, I provide evidence that IPO syndicate banks use their affiliated institutional investors to build a relationship with IPO lead underwriters and boost their underwriting business. First, I show that investment managers provide unprofitable price support in the aftermarket of IPOs in which their parent banks are non-lead syndicate members. This costly support is concentrated in cold IPOs and IPOs net sold by independent institutions. Second, I show that lead underwriters are more likely to select in the IPO syndicate the banks whose affiliated institutional investors support IPO prices. I discuss and document evidence of the incentives of underwriters and affiliated institutions that make price support emerge in equilibrium.

Suggested Citation

  • Pratobevera, Giuseppe, 2024. "Bank-affiliated institutional investors and IPO syndicates formation," Journal of Corporate Finance, Elsevier, vol. 86(C).
    • Handle: RePEc:eee:corfin:v:86:y:2024:i:c:s092911992400049x
    DOI: 10.1016/j.jcorpfin.2024.102587
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    More about this item

    Keywords

    Institutional investors; Financial conglomerates; IPO syndicate; IPO aftermarket; Conflicts of interest;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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