The Economic Consequences of IPO Spinning
40 Pages Posted: 10 Mar 2007 Last revised: 23 Sep 2009
Date Written: September 18, 2009
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: Suggested Citation