The Economic Consequences of IPO Spinning

Xiaoding Liu, Jay R. Ritter
2009 Social Science Research Network  
Using a sample of 56 companies going public in 1996-2000 in which top executives received hot initial public offering (IPO) allocations from the bookrunner, a practice known as spinning, we examine the consequences of spinning. These IPOs had first-day returns that were, on average, 23% higher than similar IPOs. The profits collected by these executives were only a small fraction of the incremental amount of money left on the table by their companies when they went public. These companies were
more » ... ese companies were dramatically less likely to switch investment bankers in a follow-on offer: only 6% of issuers whose executives were spun switched underwriters, whereas 31% of other issuers switched. These findings suggest that the spinning of executives accomplished its goal of affecting corporate decisions.
doi:10.2139/ssrn.968712 fatcat:hi7lnukparh6famzuqq4lxjyfy