Allocation of shares to foreign and domestic investors: Firm and ownership characteristics in Swedish IPOs

• This paper analyzes stockholdings following IPOs in Sweden.
• We show that institutional investors can identify underpriced offerings.
• The results show that insider holdings are related to underpricing.
• The results highlight the topic on how to allocate shares in IPOs.

In this article, we analyze underpricing of initial public offerings (IPOs) and holdings following offerings in Sweden. By exploiting a unique hand-collected data set with information on the ultimate holdings by institutional and individual investors, as well as boards of directors, we find, as most prior studies, that IPOs on average are underpriced. IPOs with low (high) initial return have higher (lower) holdings by individual investors. Institutional investors are, to a greater extent than individual investors, also able to identify underpriced firms.