Valuation and performance of reallocated IPO shares

Shares in book-building IPOs can be reallocated in different proportions between retail and institutional investors, compared to the target allocation initially reported in official prospectuses. We use a sample of 195 Italian IPOs to discover an increased reallocation to retail investors in IPOs overvalued compared to peer firms. Institutional investors benefit from reallocation as they obtain more shares in IPOs with better long run performance.