Allocation of reserved shares in IPO and their post-IPO performance.

• Main Authors: Chong, Raymond Yen Sin., Shen, Heman Weiping., Tang, Lijun.
• Other Authors: Chong Beng Soon
• Format: Final Year Project
• Language: English
• Published: 2011
• Subjects: DRNTU::Business::Finance::Equity
• Online Access: http://hdl.handle.net/10356/43916
• Institution: Nanyang Technological University

This paper presents and investigates three distinct proposals for the underlying rationales of the allocation of reserved shares, based on 1964 IPOs in the US spanning the years 1997 to 2009, tracking their underpricing, demand and post-IPO performance. Our study reveals that the primary motivation for reserved share allocations is to reward and incentivize certain stakeholders, as offerings with reserved shares experience significantly greater underpricing. We find little evidence for the notion that firms have a tendency to allocate reserved shares during periods of low demand. We also find mixed support that the administering of reserved shares signals superior firm value.