This study examines how the business relationship between IPO underwriters and institutional investors affects the holding periods of IPO stocks allocated to institutional investors by underwriters. Studies such as Reuter (2006), Binay, Gatchev, and Prinsky (2007), and Chung and Kim (2015) have shown that the business relationship between underwriters and institutional investors affects underwriters' initial allocation of IPO stocks. Chemmanur, Hu, and Huang (2010) argue that underwriters allocate more IPO stocks to institutional investors because institutional investors tend to hold stocks longer, especially for weaker post-issue demand IPOs, helping underwriters' efforts to stabilize prices in the after-IPO market period. However, it is well known that on average, institutional investors sell initially allocated IPO stocks quite soon after they have been listed in the market. For example, Aggarwal (2003) and Boehmer, Boehmer, and Fishe (2006) report that in the U.S. market, flipping—that is, selling initially allocated IPO stocks within a couple of days after their listings —is common and it is mostly conducted by institutional investors. An analysis by the Financial Supervisory Service in Korea of 142 Korean IPOs listed in the Jan. 2008 to Sept. 2010 period found that on average, 64.7% of IPO shares were allocated to institutional investors, who sold 34.2% of them during the first trading day and 48% of them during the first 4 weeks after the listing. In addition, Dongyang Securities, examining 119 Korean IPOs from the Jan. 2010 to Jun. 2011 period, report that the return on IPO stocks falls rapidly after their listing, and the average closing price of the IPO stocks in one year falls to only 77% of their closing prices on the first trading day. They blame the institutional investors' flipping of IPO stocks for the rapid price drop. It is thus evident that the length of time that institutional investors hold initially allocated IPOs in the after-market is an important issue for IPO firms and underwriters who wish to stabilize prices and protect their reputation capital. We therefore argue, based on the findings from prior studies, that the holding period can be affected by the business relationship between underwriters and institutional investors. To examine the effect of the business relationship between underwriters and institutional investors on institutional investors' holding period of initially allocated IPOs, we use monthly mutual fund holding information and IPOs listed in the KOSDAQ market for the 2002 to 2012 period. To the best of our knowledge, this is the first study to examine the holding period of IPO stocks by institutional investors in Korea. Following Chung and Kim (2015), we measure the strength of a business relationship in three ways: (1) the total investment amount by each mutual fund in IPOs underwritten by each underwriter, (2) the number of participation by each mutual fund in IPOs underwritten by each underwriter, and (3) the average investment of each mutual fund in each IPO underwritten by an underwriter for the two years prior to the target IPO. We find that mutual funds sell, on average, about 48% of the IPO stocks within 30 calendar days of the listing. However, funds that have 1 (2)-year business relationships with the underwriter hold the IPO stocks, on average, 22.67 (17.12) calendar days longer than those without a relationship. We also show that the strength of the relationship matters: the stronger the relationship is, the longer the holding period. Tobit analyses confirm Aggarwal's (2003) finding that institutional investors tend to sell more underpriced IPOs (hot IPOs) more quickly. We, however, show that when institutional investors have a strong business relationship with underwriters, they seem to hold hot IPOs longer than when they have a relatively weaker relationship. Combined with the results from Chung and Kim (2015), these results imply that underwriters allocate more favorable IPO stocks to institutional investors with whom they have business relationships, and institutional investors hold the IPO stocks longer, helping the underwriters stabilize prices in the after-IPO market. In addition, we find that funds that are affiliated with underwriters hold IPO stocks for shorter periods than unaffiliated funds. We also find that the business relationship has a negative effect on the holding periods of affiliated funds.