Quid Pro Quo? What Factors Influence IPO Allocations to Investors?

With data from all the leading international investment banks on 220 IPOs raising $160bn, we test the determinants of IPO allocations. We compare investors' IPO allocations with proxies for their information production during the bookbuilding and the broking (and other) revenues those investors generate for bookrunners. We find evidence consistent with information revelation theories. We also find strong support for the existence of a quid pro quo: broking revenues are a significant driver of investors' IPO allocations and profits. The quid pro quo remains when we control for any unobserved investor characteristics and investor-bank relationships