Mutual Fund Participation in IPOs: Thai Evidence

Underwriters and co-managers play an important role in IPOs, but because they often have affiliated mutual funds, concerns about conflicts of interest can arise. On the one hand, they can use this affiliation for the benefit of their asset management business (the information advantage hypothesis); on the other hand, they can use mutual funds under their control to support their IPO clients (the quid pro quo hypothesis). In this article, we find that the behavior of lead underwriter-affiliated funds in Thailand is more consistent with the information advantage hypothesis and co-manager-affiliated funds more consistent with the quid pro quo hypothesis. We also find further evidence of strategic placement of IPO stocks within fund family.