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Institutional Ownership and IPO Performance: Australian Evidence



The duo IPO anomalies of underpricing and long run underperformance have inspired a plethora of studies. Yet few have examined the impact of majority investors in IPOs, namely institutional investors. Consistent with previous studies, we found large underpricing which was greatest in those issuers with the highest initial institutional ownership. Yet these issuers experienced the worst long-run underperformance which casts doubts over the informed-trading hypothesis. The findings are consistent with overreactions driven by informational cascade in the IPO market. High level of initial institutional interests generates informational herding that drives these issuers’ prices beyond the fundamental. Over time, market correction leads to the long-run underperformance. Our results cast a somewhat different light on institutions’ role in IPOs, rather than being a valuable source of price discovery; Institutions may be a force of destabilization in what is already an event wrath with uncertainty.

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  • Ron Bird & Danny Yeung, 2010. "Institutional Ownership and IPO Performance: Australian Evidence," Working Paper Series 6, The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney.
  • Handle: RePEc:uts:pwcwps:6

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    Cited by:

    1. Alberto Dreassi & Massimiliano Kaucic & Giorgio Valentinuz, 2017. "The Information Content Of Earnings Announcements In The European Insurance Market: An Event Study Analysis," Eurasian Journal of Business and Management, Eurasian Publications, vol. 5(3), pages 1-16.
    2. Salim Darmadi & Randy Gunawan, 2013. "Underpricing, board structure, and ownership: An empirical examination of Indonesian IPO firms," Managerial Finance, Emerald Group Publishing, vol. 39(2), pages 181-200, January.

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