The Effects of Laddering and Spinning in Underwriter Manipulation of IPOs

Using a unique and larger sample of companies from going public from 1998- 2000 classified by both spinning and laddering manipulation, we are able to disentangle the effects of laddering and spinning and find that much of the underpricing during the internet bubble was due to laddering rather than spin-ning. In fact, we find that a laddered IPO is expected to be underpriced by 110% compared to a non-laddered IPO. The effects of spinning are insig-nificant once laddering is simultaneously considered. Our study lends further support to the laddering theory of Aggarwal et al. (2006) as a reason for IPO underpricing during the internet bubble.