On the Origin of IPO Profits
61 Pages Posted: 26 Oct 2021 Last revised: 22 Feb 2022
Date Written: October 29, 2021
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: Suggested Citation