The Role of Underwriter-Affiliated Institutional Investors in the IPO Aftermarket

By using institutional trading data in a sample of US IPOs, I show that investment managers provide costly price support in the aftermarket of IPOs in which their parent banks are non-lead syndicate members. This costly support is concentrated in cold IPOs and IPOs net sold by independent institutions. Divestitures of parent banks' subsidiaries corroborate a causal interpretation of these results. I provide evidence that is consistent with non-lead syndicate banks using their affiliated investors to build a relationship with IPO lead underwriters and boost their underwriting business. Affiliated institutions are rewarded with more allocations in IPOs led by their parent banks