The Role of Underwriter-Investor Relationships in the IPO Process

The Role of Underwriter-Investor Relationships in the IPO Process

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 distribu...

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Veröffentlicht in:Journal of financial and quantitative analysis 2007-09, Vol.42 (3), p.785-809
Hauptverfasser: Binay, Murat M., Gatchev, Vladimir A., Pirinsky, Christo A.
Format: Artikel
Sprache:eng
Schlagworte:
Business community
Business partnership
Capital formation
Conditional probabilities
Enterprises
Financial economics
Financial management
Financial research
Initial public offering
Initial public offerings
Internet
Investment banking
Investment banks
Investors
Price level changes
Quantitative analysis
Syndicates
Underwriting
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Zusammenfassung: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.
ISSN:0022-1090
1756-6916
DOI:10.1017/S002210900000418X