Institutional Allocation in Initial Public Offerings: Empirical Evidence
Stanford GSB Research Paper No. 1747
37 Pages Posted: 2 Oct 2001
Date Written: February 2002
We analyze institutional allocation in initial public offerings (IPOs) using a new dataset of US offerings between 1997 and 1998. We document a positive relationship between institutional allocation and day one IPO returns. This is partly explained by the practice of giving institutions more shares in IPOs with strong pre-market demand, consistent with book-building theories. However, institutional allocation also contains private information about first-day IPO returns not reflected in pre-market demand and other public information. Our evidence supports book-building theories of IPO underpricing, but suggests that institutional allocation in underpriced issues is in excess of that explained by book-building alone.
JEL Classification: G14, G18, G24, G32
Suggested Citation: Suggested Citation