The Small IPO and the Investing Preferences of Mutual Funds

Bartlett, Robert P.; Rose, Paul; Davidoff Solomon, Steven

doi:10.2139/ssrn.2718862

The Small IPO and the Investing Preferences of Mutual Funds

Ohio State Public Law Working Paper No. 328

UC Berkeley Public Law Research Paper No. 2718862

60 Pages Posted: 20 Jan 2016 Last revised: 7 Dec 2017

Robert P. Bartlett

University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy

Ohio State University - Moritz College of Law; Bocconi University - BAFFI Center on International Markets, Money, and Regulation; Tufts University - The Fletcher School of Law and Diplomacy; Fundación Instituto de Empresa, S.L. - IE Business School

Steven Davidoff Solomon

University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy

Date Written: July 28, 2017

Abstract

We examine how liquidity and return concerns at large mutual funds explain their diminished participation in small IPOs since the late 1990s. Using 5,825 IPOs and portfolio-level information for 37,052 funds, we exploit Russia’s 1998 debt default as an exogenous shock to funds’ liquidity concerns. After 1998, large funds invested in fewer small/illiquid IPOs and more large/liquid IPOs than smaller funds and received higher returns for small IPO investments. Given increased fund sizes since 1990, these results are consistent with fund’s liquidity concerns and their demand for greater compensation when investing in transactions representing a trivial fraction of fund assets.

Keywords: Initial Public Offerings, liquidity, flight-to-liquidity, mutual funds, institutional investors

JEL Classification: G01, G11, G12, G20, G24, G38

Suggested Citation: Suggested Citation

Bartlett, Robert P. and Rose, Paul and Davidoff Solomon, Steven, The Small IPO and the Investing Preferences of Mutual Funds (July 28, 2017). Ohio State Public Law Working Paper No. 328; UC Berkeley Public Law Research Paper No. 2718862. Available at SSRN: https://ssrn.com/abstract=2718862 or http://dx.doi.org/10.2139/ssrn.2718862