Thomas Chemmanur of Boston College next up in finance seminar series
The second presenter in the Mike Ilitch School of Business finance seminar series is Professor of Finance and Hillenbrand Distinguished Fellow Thomas Chemmanur of Boston College's Carroll School of Management. He will discuss "The Geography of Institutional Investors, Information Production, and Initial Public Offerings" on Friday, Jan. 26, at 10 a.m. in the Prentis Building Rini Room.
All are welcome.
Abstract
We analyze how the geographical locations of institutions relative to each other affect their investments in IPOs and various characteristics of the IPOs that they invest in. We argue that institutions geographically close to each other may share information and influence each other’s information production and investment decisions in IPOs. We hypothesize that geographical proximity among institutions may have two opposing effects. On the one hand, if institutions’ information production is exogenous, institutions close to each other (able to share information more efficiently), will collectively have better information than more dispersed institutions; on the other hand, if information production is endogenous, geographically clustered institutions’ ability to free-ride on each other’s information when evaluating IPOs may lead to each institution devoting less effort to information production, so that geographically clustered institutions may collectively have less accurate information compared to geographically dispersed institutions. We test the implications of the above opposing hypotheses for various characteristics of IPOs dominated by geographically clustered versus geographically dispersed institutions. Our results may be summarized as follows. First, the equity holdings of each institution in IPOs are influenced more by the investments made by neighboring institutions than by those by distant institutions. Second, an increase in the geographical dispersion of the institutions investing in an IPO is associated with higher IPO price revisions, higher IPO and immediate secondary market valuations, larger IPO initial returns, and greater long-run post-IPO stock returns. Third, consistent with an information production channel driving the above results, we find that the extent of information asymmetry facing an IPO firm is decreasing in the geographical dispersion among the institutions investing in it. Finally, the predictive power of institutional trading post-IPO for subsequent long-run stock returns and for earnings surprises for the first fiscal-year end after the IPO is greater for geographically isolated institutions compared to that for geographically clustered institutions.
For more information about this event, please contact Finance Department Chair and Professor Sudip Datta at 313-577-0408.
