Underwriters and the Broken Chinese Wall: Institutional Holdings and Post-IPO Securities Litigation

46 Pages Posted: 8 Aug 2013 Last revised: 13 Jun 2014

See all articles by Sergey Barabanov

Sergey Barabanov

University of St. Thomas

Onem Ozocak

Brock University - Department of Finance, Operations and Information Systems (FOIS)

Kuntara Pukthuanthong

University of Missouri, Columbia

Thomas John Walker

Concordia University, Quebec - Department of Finance

Date Written: August 8, 2013

Abstract

We examine whether underwriters have an information advantage over other institutional investors in new public companies. We focus our attention on a sample of publicly traded firms that have become the target of an IPO-related securities class action lawsuit filed under Section 11 of the 1933 Securities Act between January 1991 and December 2006 and a matched sample of similar non-sued firms. We compare aggregate institutional holdings changes in sued and non-sued firms as well as holding revisions by different types of institutions that are classified based on their involvement in the IPO process. Our empirical evidence suggests that lead underwriters retain an information advantage in the firms they take public and that they capitalize on this information by closing out or reducing their holdings in sued firms prior to the eventual litigation date. At the same time, an examination of analyst opinions suggests that analysts affiliated with lead underwriters are somewhat reluctant to reduce their earnings forecasts or downgrade sued firms prior to the litigation date.

Keywords: Institutional Ownership, Analyst Earnings Forecasts, Securities Litigation, Initial Public Offerings

JEL Classification: G11, G12, G14, G18, K22

Suggested Citation

Barabanov, Sergey and Ozocak, Onem and Pukthuanthong, Kuntara and Walker, Thomas John, Underwriters and the Broken Chinese Wall: Institutional Holdings and Post-IPO Securities Litigation (August 8, 2013). Journal of Financial Research, Winter 2013 Volume 36, Issue 4, pages 543–578, Available at SSRN: https://ssrn.com/abstract=2307426 or http://dx.doi.org/10.2139/ssrn.2307426

Sergey Barabanov

University of St. Thomas ( email )

1000 LaSalle Ave.
Minneapolis, MN 55403
United States
651-962-5042 (Phone)
651-962-5093 (Fax)

Onem Ozocak

Brock University - Department of Finance, Operations and Information Systems (FOIS) ( email )

Ontario, L2S 3A1
Canada

Kuntara Pukthuanthong (Contact Author)

University of Missouri, Columbia ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
6198076124 (Phone)

HOME PAGE: https://www.kuntara.net/

Thomas John Walker

Concordia University, Quebec - Department of Finance ( email )

Montreal, Quebec H3G 1M8
Canada

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