 Underwriters' allocation with and without discretionary power: Evidence from the Hong Kong IPO marketKhelifa Mazouz, Abdulkadir Mohamed, Brahim Saadouni and Shuxing Yin International Review of Financial Analysis, 2017, vol. 49, issue C, 128-137 Abstract: This study uses a unique and extensive data set from the Hong Kong IPO market to examine the theory of adverse selection under two distinct regulatory regimes in relation to underwriters' discretionary power in IPO share allocation. Consistent with Rock's (1986) theory of adverse selection in the IPO market, we show that, prior to the introduction of the clawback provision; retail (uninformed) investors were allocated more of the overpriced offerings and less of the underpriced issues. However, after the provision is implemented, retail investors have been allocated significantly more of the underpriced offerings and less of the overpriced ones. Overall, we find that allocation-adjusted initial returns for the retail investors are lower (higher) than the risk-free rate pre- (post-) clawback provision. These findings imply that the mandatory clawback provision has enhanced the fairness in IPO share allocations among different investor groups and has reduced the winner's curse in the IPO market. Keywords: Mandatory clawback; Adverse selection; Allocation-adjusted returns (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:49:y:2017:i:c:p:128-137 DOI: 10.1016/j.irfa.2016.12.006 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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