Are IPO Allocations for Sale? Evidence from Mutual Funds

41 Pages Posted: 19 May 2004

See all articles by Jonathan Reuter

Jonathan Reuter

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: June 30, 2005


Combining data on explicit brokerage commissions that mutual fund families paid for trade execution between 1996 and 1999 with data on mutual fund holdings of initial public offerings (IPOs), I document a robust positive correlation between commissions paid to lead underwriters and reported holdings of the IPOs they underwrote. Moreover, I find that the correlation is limited to IPOs with nonnegative first-day returns and strongest for IPOs that occur shortly before mutual funds report their holdings, when the noise introduced by flipping is smallest. Overall, the evidence suggests that business relationships with lead underwriters increase investor access to underpriced IPOs.

Keywords: Initial public offerings, IPO allocations, brokerage commissions, mutual funds, bookbuilding, quid pro quo, favoritism

JEL Classification: G24

Suggested Citation

Reuter, Jonathan, Are IPO Allocations for Sale? Evidence from Mutual Funds (June 30, 2005). Available at SSRN: or

Jonathan Reuter (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
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Chestnut Hill, MA 02467-3808
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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