The Role of Underwriter-Affiliated Institutional Investors in the IPO Aftermarket
52 Pages Posted: 4 Nov 2019 Last revised: 25 Nov 2019
Date Written: October 16, 2019
By using institutional trading data in a sample of US IPOs, I show that investment managers provide costly price support in the aftermarket of IPOs in which their parent banks are non-lead syndicate members. This costly support is concentrated in cold IPOs and IPOs net sold by independent institutions. Divestitures of parent banks' subsidiaries corroborate a causal interpretation of these results. I provide evidence that is consistent with non-lead syndicate banks using their affiliated investors to build a relationship with IPO lead underwriters and boost their underwriting business. Affiliated institutions are rewarded with more allocations in IPOs led by their parent banks.
Keywords: Institutional investors, Financial conglomerates, IPO aftermarket, IPO syndicate, Conflicts of interest
JEL Classification: G23, G24, G32, G14
Suggested Citation: Suggested Citation