Do Underwriters Place IPO Shares in the Best Hands and Does it Matter?
81 Pages Posted: 1 Dec 2014
Date Written: October 13, 2014
I test the Wall Street claim that investment banks place shares of equity offerings in the hands of "dedicated" shareholders. For IPOs where investment banks have discretion over selecting the shareholder base, I find investment banks do not satisfy long-term shareholders’ demand for shares. Investment banks do not influence the IPOs’ shareholder composition in a manner that affects long-run returns, volatility nor monitoring of management. I find a significant correlation between shareholder composition and five-year returns following SEOs, but no correlation for IPOs. Evidence suggests these results are due to investor stock selection and not investment banks placement decisions.
Keywords: Institutional investors, equity offerings, long-run stock performance, book building
JEL Classification: G11, G14, G32, G34
Suggested Citation: Suggested Citation