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The Role of Underwriter-Investor Relationships in the IPO Process

Published online by Cambridge University Press:  06 April 2009

Murat M. Binay ,
Vladimir A. Gatchev  and
Christo A. Pirinsky
Murat M. Binay
Affiliation:
[email protected], Graduate School of Management, Claremont Graduate University, 1021 North Dartmouth Avenue, Claremont, CA 91711
Vladimir A. Gatchev
Affiliation:
[email protected], College of Business Administration, University of Central Florida, Orlando, FL 32816
Christo A. Pirinsky
Affiliation:
[email protected], College of Business and Economics, California State University, Fullerton, 2600 E. Nutwood, Suite 1060, Fullerton, CA 92831.
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Abstract

We find that in allocating initial public offerings (IPOs), underwriters favor institutions they have previously worked with. Regular investors benefit more than casual investors in IPOs through greater participation in underpriced issues. Relationship participation is more important in the distribution of IPOs with stronger demand, IPOs of less liquid firms, and deals by less reputable underwriters. Overall, our results are consistent with book-building theories of IPOs. Interestingly, for 1999–2000 we find that regular investors receive even more underpriced IPOs relative to previous years while we do not find evidence that they provide additional services in IPOs.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 42 , Issue 3 , September 2007 , pp. 785 - 809
Copyright
Copyright © School of Business Administration, University of Washington 2007

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