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The Small IPO and the Investing Preferences of Mutual Funds

60 Pages Posted: 20 Jan 2016 Last revised: 16 Aug 2017

Robert P. Bartlett III

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

Paul Rose

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

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

Robert P. Bartlett III (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States
510-642-6646 (Phone)

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

UC Berkeley School of Law
Berkeley, CA 94720

Paul Rose

Ohio State University - Moritz College of Law ( email )

55 West 12th Avenue
Columbus, OH 43210
United States

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

Tufts University - The Fletcher School of Law and Diplomacy ( email )

Medford, MA 02155
United States

Fundación Instituto de Empresa, S.L. - IE Business School ( email )

Calle Maria de Molina 12, Bajo
Madrid, Madrid 28006
Spain

Steven Davidoff Solomon

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

University of California, Berkeley - Berkeley Center for Law, Business and the Economy ( email )

Berkeley, CA 94720-7200

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