Do institutional investors play hide-and-sell in the IPO aftermarket?

Tamara Nefedova and Giuseppe Pratobevera ()
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Tamara Nefedova: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: We document a robust buy/sell asymmetry in the choice of the broker in the IPO aftermarket: institutions that sell IPO shares through non‑lead brokers tend to have bought them through the lead underwriters in the IPO aftermarket. This trading behavior is consistent with institutional investors hiding their sell trades and presumably breaking their laddering agreements with the lead underwriters. The asymmetry is the strongest in cold IPOs and is limited exclusively to the first month after the issue, when the incentives not to be detected are the strongest. We show that the intention to flip IPO allocations is not an important motive for hiding sell trades from the lead underwriters. We find that hiding sell trades is an effective strategy to circumvent underwriters' monitoring mechanisms: the more institutions hide their sell trades, the less they are penalized in subsequent IPO allocations.

Keywords: IPO aftermarket trading; IPO allocations; Initial Public Offering; Laddering; Flipping; Institutional investors (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

Published in Journal of Corporate Finance, 2020, 64, ⟨10.1016/j.jcorpfin.2020.101627⟩

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Related works:
Journal Article: Do institutional investors play hide-and-sell in the IPO aftermarket? (2020)
Working Paper: Do Institutional Investors Play Hide-and-Sell in the IPO Aftermarket? (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03071724

DOI: 10.1016/j.jcorpfin.2020.101627

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