Prestige without purpose? Reputation, differentiation, and pricing in US equity underwriting
Fernando, Chitru S. Gatchev, Vladimir A. May, Anthony D. Megginson, William L.
Fernando, Chitru S.
Gatchev, Vladimir A.
May, Anthony D.
Megginson, William L.
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Time Period
Advisors
Original Date
Digitization Date
Issue Date
2015-06
Type
Article
Genre
Keywords
Equity underwriting,Underwriter reputation,Underwriting spreads,Investment banking,Firm-underwriter matching,Underwriting syndicates
Subjects (LCSH)
Citation
Fernando, Chitru S.; Gatchev, Vladimir A.; May, Anthony D.; Megginson, William L. 2015. Prestige without purpose? Reputation, differentiation, and pricing in US equity underwriting. Journal of Corporate Finance, vol. 32, June 2015:pp 41–63
Abstract
Clustering of IPO underwriting spreads at 7% poses two important puzzles: Is the market for U.S. equity underwriting services anti-competitive and why do equity underwriters invest in reputation-building? This study helps resolve both puzzles. Modeling endogeneity of firm-underwriter choice using a two-sided matching approach, we provide strong evidence of price and service differentiation based on underwriter reputation. High-reputation banks receive average reputational premia equaling 0.65% (0.47%) of average IPO (SEO) underwritten proceeds, which constitutes 10% (13%) of their underwriting spreads. Equity issuers working with high-reputation underwriters receive significant benefits, including higher offer values and lower percentage spreads net of reputational premia. (C) 2015 Published by Elsevier B.V.
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Publisher
Elsevier B.V.
Journal
Book Title
Series
Journal of Corporate Finance;v.32
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Archival Collection
PubMed ID
DOI
ISSN
0929-1199