Sami Torstila

The Clustering of IPO Gross Spreads: International Evidence

Patterns of clustering in IPO gross spreads can be identified not only in the U.S., but also in many other markets across the world. The evidence indicates, however, that these clustering patterns are not necessarily collusive. Clustering is widespread in many countries with low gross spreads. In fact, the amount of clustering observed is negatively related to the gross spread level of a country. Additionally, an analysis of abnormal gross spreads following Hansen (2001) indicates that few clusters contain abnormal positive surpluses.

What Determines IPO Gross Spreads in Europe

This paper examines the behavior of underwriting gross spreads in European IPO markets using a data set of 565 IPOs by European issuers in the period 1986 - 1999. Privatizations have lower gross spreads than other IPOs, other things remaining equal. Gross spreads on European listings by European issuers are significantly lower than on U.S. listings by European issuers, except on the technology stock - oriented EASDAQ and Frankfurt Neuer Markt exchanges. IPOs involving a U.S. bulge bracket underwriter (for joint U.S./Europe listings) or bookbuilding are characterized by relatively higher spreads.

Do Retail Incentives Work in Privatizations

20 countries around the world have used incentive packages, including bonus shares and discounts, to attract retail investors to participate in privatizations. Using a unique dataset, we estimate the total cost of incentive packages at approximately

The Distribution of Fees Within the IPO Syndicate

27 billion. The expiration of bonus share plans is associated with a six-day abnormal return of -1.1% and a long-term increase in volume. Incentives have been surprisingly effective in meeting stated privatization objectives. A dollar spent on retail incentives helps to attract about 21 times as many investors as a dollar spent on underpricing. Individual-level analysis shows that flipping is not only much reduced in the short term, but also declines by at least 15% over a period of 1,000 trading days.

The Distribution of Information Among Institutional and Retail Investors in IPOs

This paper examines the division of fees within the IPO underwriting syndicate using data on 4,186 US IPOs in the 1990s. Like the 7% gross spread, the standard contract of 20% management fee, 20% underwriting fee, and 60% selling concession has become more common in recent years. There exists, however, significant variation from these standard percentages. The percentage of the total spread paid as selling concessions increases with offering size. This result is attributed to differential economies of scale in managing and underwriting an IPO versus selling it and to differences in bargaining power.

Stock ownership and political behavior: Evidence from demutualizations

This study examines investor performance in IPOs using a unique database comprising 85,384 investors and 29 offerings from Finland. The evidence indicates that on average institutional investors do not obtain larger initial returns than retail investors, as the incentive to acquire information is limited by allocation rules which favour small orders. This result is in contrast to findings by Aggarwal et al. (2002), who show that institutional investors perform better in a bookbuilding environment. Within each investor category, however, large orders are associated with the best performance, suggesting that information differences figure more importantly within rather than between categories.

Stock ownership and political behavior

A setting in which customer-owned mutual companies converted to publicly listed firms created a plausibly exogenous increase in stock ownership. We use this shock to identify the effect of ownership of publicly listed shares on political behavior. Using instrumental variable regressions, difference-in-differences analyses, and matching methods, we find the shock changed the way people vote in the affected areas, with the demutualizations being followed by a 1.7–2.7-percentage-point increase in right-of-center vote share. Analyses of demutualizations that did not involve public listing of shares suggest that explanations based on wealth, liquidity, and tax-related incentives do not drive the results, and that the ownership of publicly listed shares was instrumental in generating the increase in conservative voting. This paper was accepted by Gustavo Manso, finance.

Evidence on Anchoring to Industry Multiples in IPO Pricing

A setting in which customer-owned mutual companies converted to publicly listed firms created a plausibly exogenous shock to salience of stock ownership. We use this shock to identify the effect of stock ownership on political behavior. Using IV regressions, difference-in-differences analyses, and matching methods, we find the shock changed the way people vote in the affected areas, with the demutualizations being followed by a 1.7–2.7 percentage points increase in rightof- center vote share. Analyses of demutualizations that did not involve public listing of shares suggest that explanations based on wealth, liquidity, and tax-related incentives do not drive the results.

Prolonged Private Equity Holding Periods: Six Years is the New Normal

We develop a hypothesis where IPO offer prices are anchored to average valuation multiples of industry peers. The hypothesis predicts initial price compression: IPOs with multiples higher than peers should experience higher-than-average abnormal returns, and vice versa. Accordingly, IPOs with P/E multiples higher (lower) than peers exhibit 2.8 percentage points higher (5.5 percentage points lower) first-day returns than average. A one-standard-deviation increase in valuation difference is associated with a 5-10 percentage-point higher first-day return. We find no evidence of associated reversals in long-term risk-adjusted returns. This explanation of IPO pricing is orthogonal to partial adjustment, prospect theory, and sentiment.

Stock Market Aversion? Political Preferences and Stock Market Participation

The high internal rates of return sought by private equity funds are highly sensitive to portfolio company holding periods. We examine a sample of 2,328 European buyouts for which detailed financial statement data is available for controls. Our results establish that the average holding period has lengthened from an average of 4.7 years before the financial crisis to 5.8 years after the crisis. What explains this fact? We examine several potential explanations. We rule out that the increase is fully driven by changes in exit markets. Changes towards longer-term value-creation mechanisms, and increased PE market competition are possible explanations.