Underwriter Quality and Long-Run IPO Performance

Accepted in Financial Management

52 Pages Posted: 11 Feb 2009 Last revised: 15 Dec 2010

See all articles by Ming Dong

Ming Dong

York University - Schulich School of Business

Jean-Sebastien Michel

HEC Montreal

J. Ari Pandes

University of Calgary - Haskayne School of Business

Date Written: July 25, 2010

Abstract

We analyze the relationship between the quality of underwriters and the long-run performance of IPOs in the light of underwriter marketing, certification and screening, and information production. We find that higher underwriter quality (measured by the number of managing underwriters, underwriter reputation and absolute price adjustment) predicts better long-run performance, even when returns are value-weighted. We run a horse race between underwriter quality measures and find the effects of the number of managing underwriters and underwriter reputation are mutually complementary and especially strong among IPOs with high uncertainty, while absolute price adjustment – which is more likely to be associated with information production than marketing or certification/screening – loses significance. Our findings are consistent with the marketing, certification and screening roles of investment banks, but lend little support for the information production role of underwriters.

Keywords: information production, uncertainty, long-run performance, IPOs

JEL Classification: G12, G14, G24

Suggested Citation

Dong, Ming and Michel, Jean-Sebastien and Pandes, J. Ari, Underwriter Quality and Long-Run IPO Performance (July 25, 2010). Accepted in Financial Management, Available at SSRN: https://ssrn.com/abstract=1340595

Ming Dong (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext. 77945 (Phone)
416-736-5687 (Fax)

Jean-Sebastien Michel

HEC Montreal ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-7153 (Phone)
514-340-5632 (Fax)

J. Ari Pandes

University of Calgary - Haskayne School of Business ( email )

2500 University Drive NW
Calgary, Alberta T2N 1N4
Canada
403 220-4350 (Phone)

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