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Review of Financial Studies
Year: 2010  |  Volume: 23  |  Issue: 5  |  Page No.: 2024 - 2059

The Economic Consequences of IPO Spinning

X Liu and J. R. Ritter    

Abstract:

Using a sample of fifty-six companies going public in 1996–2000 in which top executives received allocations of other hot initial public offerings (IPOs) from the bookrunner, a practice known as spinning, we examine the consequences of spinning. The fifty-six 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 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.

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