Assortative Matching and Reputation in the Market for First Issues

Management Science, Forthcoming

47 Pages Posted: 2 Apr 2014 Last revised: 10 Mar 2020

See all articles by Oktay Akkus

Oktay Akkus

Bates White

J. Anthony Cookson

University of Colorado at Boulder - Leeds School of Business

Ali Hortacsu

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 27, 2016

Abstract

Using a tractable structural model of the matching equilibrium between underwriters and equity issuing firms, we study the determinants of value in underwriter-firm relationships. Our estimates imply that high underwriter reputation is associated with 10% to 15% greater long run market value for the issuing firm. Using the structural model, we quantify two distinct effects of underwriter reputation: (i) an issuer-side certification effect where greater reputation decreases underpricing, which has been stable and negative since 1985, and (ii) a subscriber-side clientele effect where high prestige underwriters utilize greater underpricing to reward investment clients, which became significantly positive only after 1990.

Keywords: two-sided matching, structural estimation, market for first issues

JEL Classification: G24, C34, C78

Suggested Citation

Akkus, Oktay and Cookson, J. Anthony and Hortacsu, Ali, Assortative Matching and Reputation in the Market for First Issues (May 27, 2016). Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2419277 or http://dx.doi.org/10.2139/ssrn.2419277

Oktay Akkus

Bates White ( email )

1300 I Street NW
Washington, DC 20005
United States

J. Anthony Cookson (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Ali Hortacsu

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-5841 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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