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Italian IPOs: Allocations and claw back clauses

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  • Boreiko, Dmitri
  • Lombardo, Stefano

Abstract

We analyze empirical share allocation practices in Italian IPOs, which are run as two separate offerings, one for retail investors who submit unconditional binding orders and another for institutional investors who submit only indications of interest. The effective allocation proportion between the two offerings is determined by a high level of syndicate discretion but before the bookbuilding period starts. Claw back clauses, a typical device of Italian IPOs, allow the syndicate to shift shares ex post from the retail to the institutional offering in a discretionary fashion. We document significant increases of the retail offering size ex post and show that this is done by more reputable underwriters in IPOs with lower institutional demand, a higher proportion of secondary shares and significantly lower levels of initial underpricing. As a result, retail investors end up buying more shares only in less profitable IPOs, although the net economic effect on their expected returns is rather small.

Suggested Citation

  • Boreiko, Dmitri & Lombardo, Stefano, 2011. "Italian IPOs: Allocations and claw back clauses," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(1), pages 127-143, February.
  • Handle: RePEc:eee:intfin:v:21:y:2011:i:1:p:127-143
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hahl, Teemu & Vähämaa, Sami & Äijö, Janne, 2014. "Value versus growth in IPOs: New evidence from Finland," Research in International Business and Finance, Elsevier, vol. 31(C), pages 17-31.
    2. Fabio Bertoni & Matteo Bonaventura & Giancarlo Giudici, 2013. "The allotment of IPO shares: placing strategies between retail versus institutional investors," Chapters,in: Handbook of Research on IPOs, chapter 10, pages 207-218 Edward Elgar Publishing.
    3. Mazouz, Khelifa & Mohamed, Abdulkadir & Saadouni, Brahim & Yin, Shuxing, 2017. "Underwriters' allocation with and without discretionary power: Evidence from the Hong Kong IPO market," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 128-137.
    4. Bertoni, Fabio & Giudici, Giancarlo, 2014. "The strategic reallocation of IPO shares," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 211-222.

    More about this item

    Keywords

    G24 G32 G38 K12 K22 IPOs Underpricing Bookbuilding Allocations Claw back clauses;

    JEL classification:

    • 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
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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