Institutional Allocation in Initial Public Offerings: Empirical Evidence

We analyze institutional allocation in initial public offerings (IPOs) using a new data set of U.S. offerings between 1997 and 1998. We document a positive relationship between institutional allocation and day one IPO returns. This is partly explained by the practice of giving institutions more shar...

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Bibliographic Details
Published in:The Journal of finance (New York) 2002-06, Vol.57 (3), p.1421-1442
Main Authors: Aggarwal, Reena, Prabhala, Nagpurnanand R., Puri, Manju
Format: Article
Language:English
Subjects:
Allocation of power
Asset allocation
Capital investments
Datasets
Demand analysis
Empirical evidence
Empirical research
Financial analysis
Financial economics
Financial management
Initial public offering
Initial public offerings
Institutional investments
Investment banking
Investors
Issued capital
Rates of return
Statistical median
Stock prices
Studies
U.S.A
Zero
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Summary:We analyze institutional allocation in initial public offerings (IPOs) using a new data set of U.S. offerings between 1997 and 1998. We document a positive relationship between institutional allocation and day one IPO returns. This is partly explained by the practice of giving institutions more shares in IPOs with strong premarket demand, consistent with book-building theories. However, institutional allocation also contains private information about first-day IPO returns not reflected in premarket demand and other public information. Our evidence supports book-building theories of IPO underpricing, but suggests that institutional allocation in underpriced issues is in excess of that explained by book-building alone.
ISSN:0022-1082
1540-6261
DOI:10.1111/1540-6261.00465