Strategic Allocation to Institutional Investors, Underpricing and the After Market Performance of IPOs
70 Pages Posted: 1 Feb 2016
Date Written: January 29, 2016
We study a legal experiment that allows share allocations to institutional investors in a two-stage IPO process. We find that anchor (institutional) investors are likely to invest in hard-to-place offerings. We document a negative, causal relation between allocation to anchor investors and underpricing. We find that reputed anchor investors realize substantial profits up to lock up expiration whereas others realize losses. When lock ups expire, we find an insignificant return. Our evidence provides support to information revelation and targeting specific investors’ theories of book building. Who bids in an IPO seems to matter just as particular types of bids do.
Keywords: Initial Public Offering, Equity Issue, Going Public, Book Building, Anchor Investors
JEL Classification: G15, G24, G32
Suggested Citation: Suggested Citation