Issue Size Choice and “Underpricing” in Thrift Mutual-to-Stock Conversions




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    • College of Business and Management, University of Maryland at College Park. Maksimovic's research was supported at the University of British Columbia by a grant, number 410–92–1643, from the Canadian Social Science Research Council. We would like to thank Larry Cordell, Espen Eckbo, Mark Flannery, Mason Gerety, Edward Kane, Kathy Kuester, and Rex Thompson for helpful comments; James Barth, Larry Cordell, Larry Fleck, Leonard Lapidus, Chan-Jane Lin, Jay Ritter, and James Thomson for providing data; and Sandra Betton, Rex duPont, Keith Price, Charles Lahaie, and Eric Surette for excellent research assistance. Detailed comments from René Stulz (the editor) and an anonymous referee substantially improved the paper. We are also grateful to seminar participants at the London School of Economics, University of Maryland, University of British Columbia, UCLA, Board of Governors of the Federal Reserve System, University of Oregon, University of Texas at Dallas, the Securities and Exchange Commission, the Office of Thrift Supervision, and the Western Finance and Financial Management Association Meetings for their comments.


Issue size choice and underpricing in mutual-to-stock conversions of thrifts are explained as a function of growth opportunities, perquisite consumption, and proprietary information. We provide evidence that thrifts with greater growth opportunities choose larger issue size and experience higher after-market price appreciation. This finding persists when we allow for investors' inferences about managers' proprietary information. Variables that explain underpricing in typical initial public offerings are significant by themselves but lose significance when combined with the issue size choice variables. Managerial holdings and the offer price do not act as dissipative signals of value in thrift conversions.