Bank-affiliated institutional investors and IPO syndicates formation

Giuseppe Pratobevera

Journal of Corporate Finance, 2024, vol. 86, issue C

Abstract: By using institutional trading data in a sample of US IPOs, I provide evidence that IPO syndicate banks use their affiliated institutional investors to build a relationship with IPO lead underwriters and boost their underwriting business. First, I show that investment managers provide unprofitable price support in the aftermarket of IPOs in which their parent banks are non-lead syndicate members. This costly support is concentrated in cold IPOs and IPOs net sold by independent institutions. Second, I show that lead underwriters are more likely to select in the IPO syndicate the banks whose affiliated institutional investors support IPO prices. I discuss and document evidence of the incentives of underwriters and affiliated institutions that make price support emerge in equilibrium.

Keywords: Institutional investors; Financial conglomerates; IPO syndicate; IPO aftermarket; Conflicts of interest (search for similar items in EconPapers)
JEL-codes: G14 G23 G24 G32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:86:y:2024:i:c:s092911992400049x

DOI: 10.1016/j.jcorpfin.2024.102587

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