Strategic Allocation to Institutional Investors, Underpricing and the After Market Performance of IPOs

70 Pages Posted: 1 Feb 2016

See all articles by Shantaram P. Hegde

Shantaram P. Hegde

University of Connecticut- Finance Department

Rama Seth

Copenhagen Business School

M Durgaprasad

T.A. Pai Management Institute (TAPMI)

S.R. Vishwanath

Shiv Nadar University

Date Written: January 29, 2016

Abstract

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

Hegde, Shantaram P. and Seth, Rama and Durgaprasad, M and Vishwanath, S.R., Strategic Allocation to Institutional Investors, Underpricing and the After Market Performance of IPOs (January 29, 2016). Asian Finance Association (AsianFA) 2016 Conference, Available at SSRN: https://ssrn.com/abstract=2724450

Shantaram P. Hegde

University of Connecticut- Finance Department ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-5135 (Phone)

Rama Seth (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark
+45 3815 3815 (Phone)

M Durgaprasad

T.A. Pai Management Institute (TAPMI) ( email )

Bangalore
Manipal, Karnataka 576104
India

S.R. Vishwanath

Shiv Nadar University ( email )

NH-91, Village- Chithera, Tehsil-Dadri,
Dist. Gautam Buddha Nagar, UP
Gautam Buddha Nagar, Uttar Pradesh
India

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