Directed Share Programs In IPO Underwriting And Agency Problems

Topics:
IPO
Tags:
Agency,
Finance,
Financial Planning,
Financial Services,
Investment,
IPO
Source:
Indiana University

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Overview: In this paper the author analyzes Directed Share Programs (DSPs) that are associated with the underwriting contracts of Initial Public Offerings (IPOs). A DSP reserves IPO shares for officers, directors, employees, customers and vendors. DSPs have been criticized in the academic literature because they may create incentives to underprice IPOs. The popular press has called them a "Disturbing phenomenon". Moreover, the NASDAQ/NYSE IPO Advisory Committee has recommended that regulatory restrictions be imposed on these programs. Contrary to this criticism, the author finds no evidence that the beneficiaries of these programs are expropriating wealth from non-beneficiary shareholders. Specifically, he finds evidence inconsistent with larger DSP programs causing more underpricing.

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Format: PDF | Size: 310KB | Date: Nov 2006 | Pages: 38

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