The Geography of Institutional Investors, Information Sharing among Institutions, and Initial Public Offerings

Thomas J. Chemmanur (), Jiekun Huang, Jing Xie and Yuyuan (Anthony) Zhu ()
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Thomas J. Chemmanur: Carroll School of Management, Boston College
Yuyuan (Anthony) Zhu: T. Rowe Price

No 202409, Working Papers from University of Macau, Faculty of Business Administration

Abstract: We analyze the relation between the geographical locations of the institutions investing in firms making initial public offerings (IPOs) and IPO firm outcomes. We propose an information sharing hypothesis regarding institutional investments in IPOs whereby geographically proximate institutions (who are more likely to share information with each other) free-ride on each other’s information about IPOs. Such information sharing discourages institutions’ information production, reducing the precision of the information they produce. Consistent with this hypothesis, we find that an increase in the geographical dispersion of the institutions investing in IPO firms is associated with higher IPO price revisions, higher IPO and immediate secondary market valuations, larger IPO initial returns, and a lower extent of information asymmetry facing IPO firms in the post-IPO period. Trading by geographically isolated institutions better predicts long-term stock returns and earnings surprises for IPO firms compared to trading by clustered institutions, reinforcing the information sharing hypothesis.

Keywords: Initial Public Offerings; Institutional Investors; Geography of Institutions; Information Sharing; IPO Valuation (search for similar items in EconPapers)
JEL-codes: G14 G23 G32 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2024-06
New Economics Papers: this item is included in nep-ure
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Published in UM-FBA Working Paper Series

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