Institutional Allocation in Initial Public Offerings: Empirical Evidence

Aggarwal, Reena; Prabhala, Nagpurnanand; Puri, Manju

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Institutional Allocation in Initial Public Offerings: Empirical Evidence

NBER Working Paper No. w9070

36 Pages Posted: 20 Jul 2002 Last revised: 24 Feb 2012

See all articles by Reena Aggarwal

Reena Aggarwal

Georgetown University - Robert Emmett McDonough School of Business ; European Corporate Governance Institute (ECGI)

Manju Puri

Duke University - Fuqua School of Business; NBER

There are 3 versions of this paper

Date Written: July 2002

Abstract

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.

Suggested Citation: Suggested Citation

Aggarwal, Reena and Prabhala, Nagpurnanand and Puri, Manju, Institutional Allocation in Initial Public Offerings: Empirical Evidence (July 2002). NBER Working Paper No. w9070, Available at SSRN: https://ssrn.com/abstract=319746