Underwriter reputation, initial returns, and the long-run performance of IPO stocks

Article Abstract:

We find that the underperformance of IPO stocks relative to the market over a three-year holding period is less severe for IPOs handled by more prestigious underwriters. Consistent with prior studies, we also find that IPOs managed by more reputable underwriters are associated with less short-run underpricing. Among the various existing proxies for underwriter reputation, the Carter-Manaster measure is that most significant in the context of initial returns and also in the context of the three-year performance of IPOs. The study also provides an updated list of the Carter-Manaster measure for various underwriters. (Reprinted by permission of the publisher.)

Services, Corporate image

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Relationship-specific assets and the pricing of underwriter services

Article Abstract:

This paper investigates the effect of setup costs on the pricing of investment banking services. The existence of setup costs is predicted to result in lower underwriter spreads in IPOs for firms that are expected to issue again. Consistent with this prediction, I find significantly lower spreads for firms that make subsequent issues. I also find that a firm's likelihood of changing underwriters in a subsequent offer is related to the time between offerings and the underwriter's pricing performance in the IPO. These results suggest that the deviations from optimal pricing carry a penalty for the underwriter. (Reprinted by permission of the publisher.)

Prices and rates

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Do Bank Relationships Affect the Firm's Underwriter Choice in the Corporate-Bond Underwriting Market?

Article Abstract:

Bank relationships were found to have a significant and positive impact on a company's choice of underwriter beyond effects on fees; this finding was stronger for first-time issuers and junk-bond issuers. Serving as an arranger of previous loan transactions had the strongest influence on underwriter choice; no effects were noted for serving as a participant.

Management dynamics, Securities & Commodities Services, Securities, Commodity Contracts, and Other Financial Investments and Related Activities, Decision-making, Models, Decision making, Management, Securities industry, Comparative analysis, Company business management

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