Files
Abstract
We analyze allocations to institutional and retail investors in 441 initial public offerings (IPOs) and test whether institutions obtain IPOs with superior long-run performance. In addition to favorable first-day returns that were documented previously, we show that institutions also obtain more allocations in IPOs with better long-term performance. Moreover, we examine whether institutions possess better information than retail investors once trading has begun by analyzing how actual flipping by institutional and retail investors relates to long-run IPO performance. In contrast to previous research, we find no significant relationship between institutional or retail flipping and returns. Both results lend strong support to bookbuilding theories. In the second part, we examine the determinants of IPO-related securities-fraud lawsuits. Using duration analysis, we find that not only variables known at the time of the IPO predict the filing of subsequent lawsuits but also information that changes over time and becomes available after the IPO. Furthermore, we provide additional evidence on the lawsuit-avoidance theory of underpricing (Tinic (1988)). In contrast to recent research, we are not able to find support for this hypothesis in our data.