IPO Allocations: Discriminatory or Discretionary?

Posted: 15 Apr 2002

See all articles by Alexander Ljungqvist

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR); Swedish House of Finance; European Corporate Governance Institute (ECGI)

William J. Wilhelm

University of Virginia - McIntire School of Commerce

Multiple version iconThere are 5 versions of this paper

Abstract

We estimate the structural links between IPO allocations, pre-market information production, and initial underpricing and find that 1) allocation policies favor institutional investors, both in the U.S. and worldwide; 2) increasing institutional allocations results in offer prices that deviate more from the pre-marketing price range; 3) constraints on bankers' discretion reduce institutional allocations and result in smaller price revisions, indicating diminished information production; and 4) initial returns are directly related to information production and inversely related to institutional allocations. Our results indicate that discretionary allocations promote price discovery in the IPO market and reduce indirect issuance costs for IPO firms.

Keywords: Initial public offerings, Bookbuilding, Underpricing, Intermediation, Allocation policy

JEL Classification: G32, G15, G24

Suggested Citation

Ljungqvist, Alexander and Ljungqvist, Alexander and Wilhelm, William J., IPO Allocations: Discriminatory or Discretionary?. Journal of Financial Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=304646

Alexander Ljungqvist (Contact Author)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

William J. Wilhelm

University of Virginia - McIntire School of Commerce ( email )

Rouss & Robertson Halls, East Lawn
P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-924-7666 (Phone)
434-924-7074 (Fax)

HOME PAGE: http://gates.comm.virginia.edu/wjw9a/

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
1,435
PlumX Metrics