The Certification Role of Large Customers in the New Issues Market

This paper examines the certification role of large customers and finds that IPO firms that have product market relationships with large customers experience higher valuation and better longterm performance compared to IPOs without such relationships. This higher valuation is more pronounced when product market relationships are able to alleviate IPO uncertainties, when the businesses of large customers and their IPO suppliers are closely related in downstream markets, and when large customers have stronger certifying abilities. Finally, we find that large customers realize significant positive abnormal returns around their suppliers' preliminary prospectus filing dates, suggesting that some of the benefits from product market relationships accrue to large customers.