Institutional Allocation in Initial Public Offerings: Empirical Evidence

Reena Aggrawal, Nagpurnanand Prabhala and Manju Puri
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Reena Aggrawal: Georgetown U
Nagpurnanand Prabhala: U of Maryland

Research Papers from Stanford University, Graduate School of Business

Abstract: We analyze institutional allocation in initial public offerings (IPOs) using a new dataset of US offerings between 1997 and 1998. We document a positive relationship between institutional allocation and day one IPO returns. This is partly explained by the practice of giving institutions more shares in IPOs with strong pre-market demand, consistent with book-building theories. However, institutional allocation also contains private information about first-day IPO returns not reflected in pre-market demand and other public information. Our evidence supports book-building theories of IPO underpricing, but suggests that institutional allocation in underpriced issues is in excess of that explained by book-building alone.

Date: 2002-02
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Journal Article: Institutional Allocation in Initial Public Offerings: Empirical Evidence (2002)
Working Paper: Institutional Allocation In Initial Public Offerings: Empirical Evidence (2002)
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