EVIDENCE ON THE STRATEGIC ALLOCATION OF INITIAL PUBLIC OFFERINGS

The evidence reported in this paper suggests that institutional invest ors capture a large fraction of the short-run profits associated with IPOs. The favored status enjoyed by institutional investors in underpr iced offerings appears, however, to carry a quid pro quo expectation t hat they will participate in less-attractive issues as well. This find ing conforms with the Benveniste and Spindt (1989) and Benveniste and Wilhelm (1990) prediction that U.S. underwriters behave strategically in the allocation of IPOs.