The Geography of Institutional Investors, Information Sharing among Institutions, and Initial Public Offerings

Abstract

We analyze the relation between the geographical locations of the institutions investing in IPO firms and IPO firm outcomes. Consistent with an information sharing hypothesis, we find that an increase in the geographical dispersion of the institutions investing in IPO firms is associated with higher IPO price revisions, higher IPO and immediate secondary market valuations, larger IPO initial returns, and lower information asymmetry facing these firms in the post-IPO period. Trading in IPO firms’ equity by geographically isolated institutions, relative to that by geographically clustered institutions, more strongly predicts these firms’ long-run stock returns and earnings surprises, further supporting the information sharing hypothesis.

Keywords: Initial Public Offerings, Institutional Investors, Information Production, Geography

JEL Classification: G23, G14, G32