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Do Institutions Receive Favorable Allocations in IPOs with Better Long-Run Returns?

Published online by Cambridge University Press:  06 April 2009

Beatrice Boehmer ,
Ekkehart Boehmer  and
Raymond P. H. Fishe
Beatrice Boehmer
Affiliation:
beatriceboehmer@tamu.edu, Texas A&M University, Mays Business School, 4218 TAMU, College Station, TX 77843
Ekkehart Boehmer
Affiliation:
eboehmer@mays.tamu.edu, Texas A&M University, Mays Business School, 4218 TAMU, College Station, TX 77843
Raymond P. H. Fishe
Affiliation:
pfishe@ richmond.edu, University of Richmond, Robins School of Business, 1 Gateway Rd, Richmond, VA 23173.
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Abstract

We analyze allocations to institutional and retail investors in 441 initial public offerings (IPOs). In addition to the well-known favorable first-day returns, we show that institutions also obtain more allocations in IPOs with better long-term performance. We find that initial institutional flips help predict future returns, suggesting that at least some institutions retain valuable private information about IPO firms. Collectively, these findings illustrate the importance of aftermarket relations between underwriters and investors and that underwriters have discretionary means to compensate IPO investors beyond first-day returns and price stabilization.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 41 , Issue 4 , December 2006 , pp. 809 - 828
Copyright
Copyright © School of Business Administration, University of Washington 2006

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