Distribution of the Shares

Underwriters have different account bases that constitute the primary sources of po- tential resales of the company’s stock in the IPO. Most investment banks that serve as managing underwriters focus primarily on selling to institutional accounts. Other, often

regional, underwriters focus primarily on selling to retail customers. Companies often opt to include both types of underwriters in the underwriting syndicate for the offering, so that both institutions and individual investors participate.

The optimal mix of institutional and retail investors is a subject of much debate. In- stitutional investors typically will hold large blocks of common stock. They are gener- ally considered more sophisticated stockholders than retail investors and better able to comprehend a company’s financial and operational complexities. On the other hand, an institutional investor can more easily influence the market for a company’s common stock through its purchase and sale decisions. Institutional investors also typically take a more activist approach to corporate governance matters. Conversely, retail investors can provide liquidity and stability for a company’s common stock, and sales or purchases by a single retail investor rarely cause market movement in the company’s common stock.

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