Quid Pro Quo? What Factors Influence IPO Allocations to Investors?

Tim Jenkinson · Howard Jones · Felix Suntheim

90 citations0/0 files storedThe Journal of Finance

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Financial Markets and Investment Strategies Corporate Finance and Governance Credit Risk and Financial Regulations

Abstract

ABSTRACT Using data from all of the leading international investment banks on 220 initial public offerings (IPOs) raising $160 billion between January 2010 and May 2015, we test the determinants of IPO allocations. We compare investors’ IPO allocations with proxies for their information production during bookbuilding and the broking (and other) revenues they generate for bookrunners. We find evidence consistent with information revelation theories. We also find strong support for the existence of a quid pro quo whereby broking revenues are a significant determinant of investors’ IPO allocations and profits. The quid pro quo remains when we control for unobserved investor characteristics and investor‐bank relationships.

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References

1989How investment bankers determine the offer price and allocation of new issues 2013Where Have All the IPOs Gone?2001Bookbuilding and Strategic Allocation 1990A comparative analysis of IPO proceeds under alternative regulatory environments 2005The Role of IPO Underwriting Syndicates: Pricing, Information Production, and Underwriter Competition 2006Are IPO Allocations for Sale? Evidence from Mutual Funds 2013The U.S. left behind? Financial globalization and the rise of IPOs outside the U.S.2009IPO Underpricing over the Very Long Run

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