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Do institutional investors play hide-and-sell in the IPO aftermarket?

Author

Listed:
  • Tamara Nefedova

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Giuseppe Pratobevera

    (University of Bristol [Bristol])

Abstract

We document a robust buy/sell asymmetry in the choice of the broker in the IPO aftermarket: institutions that sell IPO shares through non‑lead brokers tend to have bought them through the lead underwriters in the IPO aftermarket. This trading behavior is consistent with institutional investors hiding their sell trades and presumably breaking their laddering agreements with the lead underwriters. The asymmetry is the strongest in cold IPOs and is limited exclusively to the first month after the issue, when the incentives not to be detected are the strongest. We show that the intention to flip IPO allocations is not an important motive for hiding sell trades from the lead underwriters. We find that hiding sell trades is an effective strategy to circumvent underwriters' monitoring mechanisms: the more institutions hide their sell trades, the less they are penalized in subsequent IPO allocations.

Suggested Citation

  • Tamara Nefedova & Giuseppe Pratobevera, 2020. "Do institutional investors play hide-and-sell in the IPO aftermarket?," Post-Print hal-03071724, HAL.
    • Handle: RePEc:hal:journl:hal-03071724
    DOI: 10.1016/j.jcorpfin.2020.101627
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    Cited by:

    1. Huosong Xia & Juan Weng & Sabri Boubaker & Zuopeng Zhang & Sajjad M. Jasimuddin, 2024. "Correction to: Cross-influence of information and risk effects on the IPO market: exploring risk disclosure with a machine learning approach," Annals of Operations Research, Springer, vol. 332(1), pages 1289-1289, January.
    2. Pratobevera, Giuseppe, 2024. "Bank-affiliated institutional investors and IPO syndicates formation," Journal of Corporate Finance, Elsevier, vol. 86(C).
    3. Chemmanur, Thomas J. & Hu, Gang & Wei, K.C. John, 2021. "The role of institutional investors in corporate and entrepreneurial finance," Journal of Corporate Finance, Elsevier, vol. 66(C).

    More about this item

    Keywords

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    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
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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