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The Geography of Institutional Investors, Information Sharing among Institutions, and Initial Public Offerings

Author

Listed:
  • Thomas J. Chemmanur

    (Carroll School of Management, Boston College)

  • Jiekun Huang

    (University of Illinois at Urbana-Champaign)

  • Jing Xie

    (Department of Finance and Business Economics, Faculty of Business Administration, University of Macau)

  • Yuyuan (Anthony) Zhu

    (T. Rowe Price)

Abstract

We analyze the relation between the geographical locations of the institutions investing in firms making initial public offerings (IPOs) and IPO firm outcomes. We propose an information sharing hypothesis regarding institutional investments in IPOs whereby geographically proximate institutions (who are more likely to share information with each other) free-ride on each other’s information about IPOs. Such information sharing discourages institutions’ information production, reducing the precision of the information they produce. Consistent with this hypothesis, we find that an increase in the geographical dispersion of the institutions investing in IPO firms is associated with higher IPO price revisions, higher IPO and immediate secondary market valuations, larger IPO initial returns, and a lower extent of information asymmetry facing IPO firms in the post-IPO period. Trading by geographically isolated institutions better predicts long-term stock returns and earnings surprises for IPO firms compared to trading by clustered institutions, reinforcing the information sharing hypothesis.

Suggested Citation

  • Thomas J. Chemmanur & Jiekun Huang & Jing Xie & Yuyuan (Anthony) Zhu, 2024. "The Geography of Institutional Investors, Information Sharing among Institutions, and Initial Public Offerings," Working Papers 202409, University of Macau, Faculty of Business Administration.
    • Handle: RePEc:boa:wpaper:202409
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Initial Public Offerings; Institutional Investors; Geography of Institutions; Information Sharing; IPO Valuation;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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