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Are IPO Allocations For Sale? Evidence from Mutual Funds

Jonathan Reuter

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

June 30, 2005

Tuck Contemporary Corporate Finance Issues III Conference Paper

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.

Number of Pages in PDF File: 41

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

JEL Classification: G24

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Date posted: May 19, 2004  

Suggested Citation

Reuter, Jonathan, Are IPO Allocations For Sale? Evidence from Mutual Funds (June 30, 2005). Tuck Contemporary Corporate Finance Issues III. Available at SSRN: https://ssrn.com/abstract=547562 or http://dx.doi.org/10.2139/ssrn.547562

Contact Information

Jonathan Reuter (Contact Author)
Boston College - Department of Finance ( email )
Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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