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Allocation to Anchor Investors, Underpricing, and the After‐Market Performance of IPOs
Author(s) -
Seth Rama,
Vishwanatha S. R.,
Prasad Durga
Publication year - 2018
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12210
Subject(s) - initial public offering , valuation (finance) , bidding , business , information asymmetry , institutional investor , finance , monetary economics , financial economics , economics , marketing , corporate governance
We study bidding by anchor investors in a two‐stage initial public offering (IPO) process and document a negative, causal relation between allocation to anchor investors and underpricing. We find that anchor investors are likely to invest in hard‐to‐place offerings characterized by valuation uncertainty. We also document a positive relation between allocation to reputed anchor investors and returns up to lock‐up expiration. Our evidence provides support for information revelation and targeting specific investors’ theories of book building. Anchor‐backed IPOs earn superior returns mainly due to monitoring. Who bids in an IPO seems to matter just as particular types of bids do.