Who Benefits from IPO Underpricing? Evidence Form Hybrid Bookbuilding Offerings

63 Pages Posted: 27 Apr 2005

Date Written: January 2005


This paper uses a unique sample of 175 Spanish equity offerings from 1985 to 2002 to test who benefits from IPO underpricing and why. Institutions receive nearly 75% of the profits in underpriced issues, while they have to bear only 56% of the losses in overpriced offerings. Superior information regarding first day underpricing cannot completely explain the institutional abnormal profits. Underwriters are better informed about the companies they take public, and use that information to favor their long term clients. The preferential treatment of institutional investors, however, does not come at the expense of retail investors. Retail investors earn positive profits from participating in the new issues market. The driving factor behind the relative retail large allocation in overpriced issues when compared to underpriced offerings is not the underwriter allocation bias in favor of institutional investors. Retail investors subscribe more heavily to underpriced issues, consistent with individuals being partially informed.

Keywords: Initial Public Offerings, Allocations, Retail Investors, Winner's Curse

JEL Classification: G32, G24

Suggested Citation

Pons-Sanz, Vicente Pascual, Who Benefits from IPO Underpricing? Evidence Form Hybrid Bookbuilding Offerings (January 2005). Available at SSRN: https://ssrn.com/abstract=634023 or http://dx.doi.org/10.2139/ssrn.634023

Vicente Pascual Pons-Sanz (Contact Author)

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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