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Institutional Allocation In Initial Public Offerings: Empirical Evidence

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  • Reena Aggarwal
  • Nagpurnanand R. Prabhala
  • Manju Puri

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

  • Reena Aggarwal & Nagpurnanand R. Prabhala & Manju Puri, 2002. "Institutional Allocation In Initial Public Offerings: Empirical Evidence," NBER Working Papers 9070, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9070
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    JEL classification:

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

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