On the Origin of IPO Profits

61 Pages Posted: 26 Oct 2021 Last revised: 22 Feb 2022

See all articles by David C. Brown

David C. Brown

University of Arizona - Department of Finance

Sergey Kovbasyuk

New Economic School, Moscow

Tamara Nefedova

Université Paris Dauphine - PSL

Date Written: October 29, 2021

Abstract

By combining investors' portfolio holdings with trading and commissions data, we analyze the determinants of IPO allocations. We distinguish among common explanations for investors' IPO profits: information revelation, quid pro quo arrangements (related to commissions), and post-IPO trading behaviors. We find that information proxies explain the majority of the variation in IPO profits, while commissions and post-IPO trading behaviors explain relatively little. Commissions and post-IPO trading matter at the extensive, but not intensive, margins, while information matters at both. Different explanations matter for allocations and IPO profits to Investment Managers, Hedge Funds, and Banks, Pension Funds and Insurers.

Keywords: IPOs, Allocations, Institutional Investors, Underwriters, Money Left on the Table

JEL Classification: G23, G24, G32

Suggested Citation

Brown, David C. and Kovbasyuk, Sergey and Nefedova, Tamara, On the Origin of IPO Profits (October 29, 2021). Proceedings of Paris December 2021 Finance Meeting EUROFIDAI - ESSEC, Université Paris-Dauphine Research Paper No. 3947927, Available at SSRN: https://ssrn.com/abstract=3947927 or http://dx.doi.org/10.2139/ssrn.3947927

David C. Brown (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-626-0746 (Phone)

HOME PAGE: http://www.davidclaytonbrown.com

Sergey Kovbasyuk

New Economic School, Moscow ( email )

Skolkovskoe shosse 45
Moscow, Moscow
Russia
+393484523151 (Phone)

HOME PAGE: http://https://www.nes.ru/sergej-kovbasyuk

Tamara Nefedova

Université Paris Dauphine - PSL ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

HOME PAGE: http://www.tamaranefedova.com

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