Hostname: page-component-cd9895bd7-q99xh Total loading time: 0 Render date: 2024-12-26T21:21:35.249Z Has data issue: false hasContentIssue false
  • English
  • Français

Underwriter Reputation, Issuer–Underwriter Matching, and SEO Performance

Published online by Cambridge University Press:  28 September 2021

Charles W. Calomiris Open the ORCID record for Charles W. Calomiris [Opens in a new window] ,
Yehuda Izhakian Open the ORCID record for Yehuda Izhakian [Opens in a new window]  and
Jaime F. Zender Open the ORCID record for Jaime F. Zender [Opens in a new window]
Charles W. Calomiris
Affiliation:
Columbia University Business School [email protected]
Yehuda Izhakian
Affiliation:
Baruch College Zicklin School of Business [email protected]
Jaime F. Zender*
Affiliation:
University of Colorado Boulder Leeds School of Business
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

The role of underwriters is altered in new seasoned equity offering deal types in which the offering follows quickly after its announcement. Controlling for the endogenous matching between issuing firms and underwriters, we find increased underwriter reputation mitigates the immediate price impact of announcing an accelerated bookbuilt offering, exacerbates the price impact of announcing a bought offering, and has no immediate price impact for fully marketed deals. In contrast, underwriter reputation positively affects price outcomes for fully marketed deals around the offer date. Reputation effects are not apparent in the absence of controlling for the endogenous matching.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 6 , September 2022 , pp. 2444 - 2483
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

The authors are very grateful to Tony Cookson for extensive discussions. The authors also thank an anonymous referee, Rob Dam, Shaun Davies, Kathleen Hanley, Jarrad Harford (the editor), Katie Moon, Brian Waters, and participants at the Leeds Finance Brown Bag seminar for helpful comments. Belinda Chen provided excellent research assistance. Izhakian acknowledges hosting by the Stern School of Business, New York University.

References

Akkus, O.; Cookson, J. A.; and Hortaçsu, A.. “The Determinants of Bank Mergers: A Revealed Preference Analysis.” Management Science, 62 (2016), 2241–2258.Google Scholar
Akkus, O.; Cookson, J. A.; and Hortaçsu, A.. “Assortative Matching and Reputation in the Market for First Issues.” Management Science, 67 (2021), 2049–2074.CrossRefGoogle Scholar
Altinkiliç, O., and Hansen, R. S.. “Are There Economies of Scale in Underwriting Fees? Evidence of Rising External Financing Costs.” Review of Financial Studies, 13 (2000), 191–218.CrossRefGoogle Scholar
Altınkılıç, O., and Hansen, R. S.. “Discounting and Underpricing in Seasoned Equity Offers.” Journal of Financial Economics, 69 (2003), 285–323.Google Scholar
Amihud, Y. “Illiquidity and Stock Returns: Cross-Section and Time-Series Effects.” Journal of Financial Markets, 5 (2002), 31–56.CrossRefGoogle Scholar
Beatty, R. P., and Ritter, J. R.. “Investment Banking, Reputation, and the Underpricing of Initial Public Offerings.” Journal of Financial Economics, 15 (1986), 213–232.CrossRefGoogle Scholar
Blackwell, D. W.; Marr, M. W.; and Spivey, M. F.. “Shelf Registration and the Reduced Due Diligence Argument: Implications of the Underwriter Certification and the Implicit Insurance Hypotheses.” Journal of Financial and Quantitative Analysis, 25 (1990), 245–259.Google Scholar
Booth, J. R., and Smith, R. L. II. “Capital Raising, Underwriting and the Certification Hypothesis.” Journal of Financial Economics, 15 (1986), 261–281.CrossRefGoogle Scholar
Bortolotti, B.; Megginson, W.; and Smart, S. B.. “The Rise of Accelerated Seasoned Equity Underwritings.” Journal of Applied Corporate Finance, 20 (2008), 35–57.CrossRefGoogle Scholar
Card, D. “Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems.” Econometrica, 69 (2001), 1127–1160.CrossRefGoogle Scholar
Carter, R., and Manaster, S.. “Initial Public Offerings and Underwriter Reputation.” Journal of Finance, 45 (1990), 1045–1067.CrossRefGoogle Scholar
Chemmanur, T. J., and Fulghieri, P.. “Investment Bank Reputation, Information Production, and Financial Intermediation.” Journal of Finance, 49 (1994), 57–79.CrossRefGoogle Scholar
Chen, H.-C., and Ritter, J. R.. “The Seven Percent Solution.” Journal of Finance, 55 (2000), 1105–1131.CrossRefGoogle Scholar
Denis, D. J. “Shelf Registration and the Market for Seasoned Equity Offerings.” Journal of Business, 64 (1991) 189–212.CrossRefGoogle Scholar
Denis, D. J. “Investment Opportunities and the Market Reaction to Equity Offerings.” Journal of Financial and Quantitative Analysis, 29 (1994), 159–177.Google Scholar
Duarte-Silva, T. “The Market for Certification by External Parties: Evidence from Underwriting and Banking Relationships.” Journal of Financial Economics, 98 (2010), 568–582.CrossRefGoogle Scholar
Dutordoir, M.; Strong, N.; and Sun, P.. “Shelf Versus Traditional Seasoned Equity Offerings: The Impact of Potential Short Selling.” Journal of Financial and Quantitative Analysis, 54 (2019), 1285–1311.CrossRefGoogle Scholar
Echenique, F.; Lee, S.; Shum, M.; and Yenmez, M. B.. “The Revealed Preference Theory of Stable and Extremal Stable Matchings.” Econometrica, 81 (2013), 153–171.Google Scholar
Fang, L. H. “Investment Bank Reputation and the Price and Quality of Underwriting Services.” Journal of Finance, 60 (2005), 2729–2761.CrossRefGoogle Scholar
Fernando, C. S.; Gatchev, V. A.; May, A. D.; and Megginson, W. L.. “Prestige Without Purpose? Reputation, Differentiation, and Pricing in U.S. Equity Underwriting.” Journal of Corporate Finance, 32 (2015), 41–63.CrossRefGoogle Scholar
Fernando, C. S.; Gatchev, V. A.; and Spindt, P. A.. “Wanna Dance? How Firms and Underwriters Choose Each Other.” Journal of Finance, 60 (2005), 2437–2469.CrossRefGoogle Scholar
Ferreira, M., and Laux, P. “Corporate Boards and SEOs: The Effect of Certification and Monitoring.” Journal of Financial and Quantitative Analysis, 51 (2016), 899–927.CrossRefGoogle Scholar
Gao, X., and Ritter, J. R.. “The Marketing of Seasoned Equity Offerings.” Journal of Financial Economics, 97 (2010), 33–52.CrossRefGoogle Scholar
Habib, M. A., and Ljungqvist, A. P.. “Underpricing and Entrepreneurial Wealth Losses in IPOs: Theory and Evidence.” Review of Financial Studies, 14 (2001), 433–458.CrossRefGoogle Scholar
Hanley, K. W., and Hoberg, G.. “The Information Content of IPO Prospectuses.” Review of Financial Studies, 23 (2010), 2821–2864.CrossRefGoogle Scholar
Hansen, R. S., and Torregrosa, P.. “Underwriter Compensation and Corporate Monitoring.” Journal of Finance, 47 (1992), 1537–1555.CrossRefGoogle Scholar
Henry, T. R., and Koski, J. L.. “Short Selling Around Seasoned Equity Offerings.” Review of Financial Studies, 23 (2010), 4389–4418.Google Scholar
Huang, R., and Zhang, D.. “Managing Underwriters and the Marketing of Seasoned Equity Offerings.” Journal of Financial and Quantitative Analysis, 46 (2011), 141–170.CrossRefGoogle Scholar
Kang, A., and Lowery, R.. “The Pricing of IPO Services and Issues: Theory and Estimation.” Review of Corporate Finance Studies, 2 (2014), 188–234.CrossRefGoogle Scholar
Khanna, N.; Noe, T. H.; and Sonti, R.. “Good IPOs Draw in Bad: Inelastic Banking Capacity and Hot Markets.” Review of Financial Studies, 21 (2007), 1873–1906.Google Scholar
Korajczyk, R. A.; Lucas, D. J.; and McDonald, R. L.. “The Effect of Information Releases on the Pricing and Timing of Equity Issues.” Review of Financial Studies, 4 (1991), 685–708.CrossRefGoogle Scholar
Loughran, T., and Ritter, J.. “Why Has IPO Underpricing Changed Over Time?” Financial Management, 33 (2004) 5–37.Google Scholar
Lyandres, E.; Fu, F.; and Li, E. X.. “Do Underwriters Compete in IPO Pricing?” Management Science, 64 (2016), 925–954.Google Scholar
Megginson, W. L., and Weiss, K. A.. “Venture Capitalist Certification in Initial Public Offerings.” Journal of Finance, 46 (1991), 879–903.CrossRefGoogle Scholar
Mikkelson, W. H., and Partch, M. M.. “Valuation Effects of Security Offerings and the Issuance Process.” Journal of Financial Economics, 15 (1986), 31–60.CrossRefGoogle Scholar
Myers, S. C., and Majluf, N. S.. “Corporate Financing and Investment Decisions When Firms Have Information that Investors Do Not Have.” Journal of Financial Economics, 13 (1984), 187–221.CrossRefGoogle Scholar
Petrin, A., and Train, K.. “A Control Function Approach to Endogeneity in Consumer Choice Models.” Journal of Marketing research, 47 (2010), 3–13.CrossRefGoogle Scholar
Rhodes-Kropf, M., and Robinson, D. T.. “The Market for Mergers and the Boundaries of the Firm.” Journal of Finance, 63 (2008), 1169–1211.CrossRefGoogle Scholar
Roth, A. E., and Sotomayor, M. A. O.. Two-Sided Matching: A Study in Game-Theoretic Modeling and Analysis, Econometric Society Monographs. Cambridge: Cambridge University Press (1990).Google Scholar
Schroth, E. “Innovation, Differentiation, and the Choice of an Underwriter: Evidence from Equity-Linked Securities.” Review of Financial Studies, 19 (2006), 1041–1080.Google Scholar
Schroth, E., and Szalay, D.. “Cash Breeds Success: The Role of Financing Constraints in Patent Races.” Review of Finance, 14 (2009), 73–118.CrossRefGoogle Scholar
Schwert, M. “Bank Capital and Lending Relationships.” Journal of Finance, 73 (2018), 787–830.CrossRefGoogle Scholar
Sherman, A. E. “Underwriter Certification and the Effect of Shelf Registration on Due Diligence.” Financial Management, 28 (1999), 5–19.CrossRefGoogle Scholar
Sørensen, M. “How Smart is Smart Money? A Two-Sided Matching Model of Venture Capital.” Journal of Finance, 62 (2007), 2725–2762.Google Scholar
Titman, S., and Trueman, B.. “Information Quality and the Valuation of New Issues.” Journal of Accounting and Economics, 8 (1986), 159–172.CrossRefGoogle Scholar
Wooldridge, J. M. Introductory Econometrics: A Modern Approach. Toronto, Canada: Nelson Education (2015).Google Scholar
Supplementary material: PDF

Calomiris et al. supplementary material

Calomiris et al. supplementary material

Download Calomiris et al. supplementary material(PDF)
PDF 171 KB