The Role of Institutional Investors in Initial Public Offerings

Abstract

We thank the Abel/Noser Corporation for generously providing us with their proprietary institutional trading data. We are grateful to Jay Ritter for making various IPO related data available on his website, and to Ken French for making the Fama/French benchmark portfolios data available on his website. Hu acknowledges support from a Babson Faculty Research Fund award. We are responsible for all remaining errors and omissions.

Do investors value SEO lockup agreements?

“…It is possible that this commitment is more valuable to less informed secondary market investors than to relatively better informed institutional investors. Since institutional investors dominate the primary market (Chemmanur, Hu & Huang, 2010), the commitment device theory predicts no association between primary investor response and the lockup. Benveniste and Spindt (1989) argue that the bookbuilding process allows underwriters and issuers to obtain information from informed investors.…”

“…Alternatively, if the lockup simply serves as a commitment device then only less informed secondary market investors will pay more for this commitment as it is more valuable to them than to the relatively better informed institutional investors. Since institutional investors who possess private information about equity offerings (Chemmanur, Hu & Huang, 2010) dominate the primary market, the commitment device theory predicts no relation between the primary investor response and the lockup decision.…”

Investment behaviours and IPO returns: evidence from Taiwan

“…Ritter and Welch (2002) inferred that the irrational trading behaviours of investors might explain the long-term and short-term prices of IPOs. 1 Compared to institutional investors, individual investors are disadvantaged in information (Chemmanur et al, 2010;Chiang et al, 2010) and prone to overreact to new events occurring in the market. Because IPOs are often issued under a hot market and undertakers tend to promote IPOs for high profits (Cook et al, 2006;Coakley et al, 2008), the high initial returns easily attract 1 Some papers explain the IPO underpricing phenomenon from other aspects, such as flotation methods (Peng and Wang, 2007), underwriter retention rate (Chen et al, 2007) and venture capitalists (Yacine and Rob, 2012).…”

Ex‐Dividend Profitability and Institutional Trading Skill

“…See Chemmanur, He, and Hu (), Goldstein et al. (), Chemmanur, Hu, and Huang (), Puckett and Yan (), Goldstein, Irvine, and Puckett (), and Anand et al. (), among others, for recent papers using these data.…”