Articlegreen2006

Are IPO Allocations for Sale? Evidence from Mutual Funds

302 citations0/0 files storedThe Journal of Finance

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Financial Markets and Investment Strategies Corporate Finance and Governance Financial Analysis and Corporate Governance

Abstract

ABSTRACT Combining data on 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 underwrite. 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.

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References

1986Why new issues are underpriced 1991Venture Capitalist Certification in Initial Public Offerings 1989How investment bankers determine the offer price and allocation of new issues 2004Why Has IPO Underpricing Changed Over Time 2002Why Don’t Issuers Get Upset About Leaving Money on the Table in IPOs?1993The underpricing of initial public offerings and the partial adjustment phenomenon 2005Why Has IPO Underpricing Changed over Time?2003IPO Pricing in the Dot‐com Bubble

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