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Institutional Allocation in Initial Public Offerings: Empirical Evidence

Author

Listed:
  • Aggrawal, Reena

    (Georgetown U)

  • Prabhala, Nagpurnanand

    (U of Maryland)

  • Puri, Manju

    (Stanford U)

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.

Suggested Citation

  • Aggrawal, Reena & Prabhala, Nagpurnanand & Puri, Manju, 2002. "Institutional Allocation in Initial Public Offerings: Empirical Evidence," Research Papers 1747, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:1747
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    More about this item

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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