Conflict of Interest and Certification in the U.S. IPO Market

33 Pages Posted: 25 Aug 2009

See all articles by Luca Benzoni

Luca Benzoni

Federal Reserve Bank of Chicago - Research Department

Carola Schenone

University of Virginia - McIntire School

Date Written: March 29, 2009

Abstract

We examine the long-term return performance of U.S. IPOs underwritten by relationship banks. We show that, over one- to three-year horizons, IPOs managed by relationship banks experience buy-and-hold benchmark-adjusted returns that are similar to those observed for a matching sample of stocks managed by non-relationship underwriters. This result holds even when the returns' skewness and cross-sectional correlation is accounted for. Further, we examine the calendar-time returns on a portfolio that is long the stocks underwritten by relationship banks and short ex-ante similar stocks taken public by non-relationship institutions. Again, we conclude that the two groups of IPOs yield similar long-run returns. These findings support the certification role of relationship banks and suggest that, in this respect, the effect of the 1999 repeal of Sections 20 and 32 of the Glass-Steagall Act has not been negative.

Keywords: Glass-Steagall Act, IPOs, Certification, Conflict of Interest, Lending Relationships

JEL Classification: G20, G30, G24, G21

Suggested Citation

Benzoni, Luca and Schenone, Carola, Conflict of Interest and Certification in the U.S. IPO Market (March 29, 2009). Journal of Financial Intermediation, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1460324

Luca Benzoni (Contact Author)

Federal Reserve Bank of Chicago - Research Department ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-8499 (Phone)

HOME PAGE: http://lbenzoni.frbchi.googlepages.com/

Carola Schenone

University of Virginia - McIntire School ( email )

Rouss and Robertson Halls
125 Ruppel Drive
Charlottesville, VA 22903
United States
434-924-4184 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
128
Abstract Views
874
rank
221,970
PlumX Metrics