The Economic Consequences of IPO Spinning

40 Pages Posted: 10 Mar 2007 Last revised: 23 Sep 2009

See all articles by Xiaoding Liu

Xiaoding Liu

Texas A&M University - Department of Finance

Jay R. Ritter

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: September 18, 2009

Abstract

Using a sample of 56 companies going public in 1996-2000 in which top executives received allocations of other hot initial public offerings (IPOs) from the bookrunner, a practice known as spinning, we examine the consequences of spinning. The 56 IPOs had first-day returns that were, on average, 23% higher than similar IPOs. The profits collected by these executives were only a small fraction of the incremental amount of money left on the table by their companies when they went public. These companies were dramatically less likely to switch investment bankers in a follow-on offer: only 6% of issuers whose executives were spun switched underwriters, whereas 31% of other issuers switched. These findings suggest that the spinning of executives accomplished its goal of affecting corporate decisions.

Keywords: Spinning, IPOs, SEOs, Underpricing

JEL Classification: G24, G28

Suggested Citation

Liu, Xiaoding and Ritter, Jay R., The Economic Consequences of IPO Spinning (September 18, 2009). AFA 2008 New Orleans Meetings Paper, Available at SSRN: https://ssrn.com/abstract=968712 or http://dx.doi.org/10.2139/ssrn.968712

Xiaoding Liu

Texas A&M University - Department of Finance ( email )

Texas A&M University
College Station, TX 77843
United States

Jay R. Ritter (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
(352) 846-2837 (Phone)
(352) 392-0301 (Fax)

HOME PAGE: http://https://site.warrington.ufl.edu/ritter

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