We treat information acquisition by potential investors in initial public offerings as endogenous. With endogenous information, the critical question is why underwriters would allow investors to spend resources acquiring superior information intended solely to effect a wealth transfer. We show...

We model an IPO company's optimal response to the presence of sentiment investors andshort sale constraints. Given regulatory constraints on price discrimination, the optimal mech-anism involves the issuer allocating stock to `regular' institutional investors for subsequentresale to sentiment...