Do Underwriters Place IPO Shares in the Best Hands and Does it Matter?

81 Pages Posted: 1 Dec 2014

Date Written: October 13, 2014

Abstract

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

Sandy, Shastri, Do Underwriters Place IPO Shares in the Best Hands and Does it Matter? (October 13, 2014). Available at SSRN: https://ssrn.com/abstract=2532255 or http://dx.doi.org/10.2139/ssrn.2532255

Shastri Sandy (Contact Author)

The Brattle Group ( email )

44 Brattle St
Cambridge, MA MA 02138
United States
312-315-8395 (Phone)

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