Spinning and Underpricing: A Legal and Economic Analysis of the Preferential Allocation of Shares in Initial Public Offerings

67 Pages Posted: 7 Apr 2004

See all articles by Sean J. Griffith

Sean J. Griffith

Fordham University School of Law; European Corporate Governance Institute (ECGI)

Abstract

Among the sullied practices to emerge from the bursting of the stock market bubble is the preferential allocation, or "spinning," of shares in initial public offerings. This Article analyzes the practice of spinning, seeking first to understand it from the perspective of financial economics and, on the basis of that understanding, to determine the proper legal treatment of spinning. Through an analysis of the offering process and the incentives of its participants, the Article locates the primary harm of spinning in the underpricing of initial public offerings. Finally, the Article evaluates the various legal and regulatory proposals aimed at spinning to determine which among them is most likely to address this distinctive harm.

Keywords: spinning, underpricing, ipo, initial public offering, securities law, issue, issuer, underwriter, conflict of interest, duty of loyalty

JEL Classification: G3, G30, G34, G39

Suggested Citation

Griffith, Sean J., Spinning and Underpricing: A Legal and Economic Analysis of the Preferential Allocation of Shares in Initial Public Offerings. Brooklyn Law Review, Vol. 69, No. 2, pp. 583-649, 2004, Available at SSRN: https://ssrn.com/abstract=525722

Sean J. Griffith (Contact Author)

Fordham University School of Law ( email )

150 West 62nd Street
New York, NY 10023
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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