On Investment Banker Monitoring in the New Issues Market
Posted: 18 Apr 2001
This article primarily addresses two largely unanswered questions in the financial economics literature: (1) Is there a demand for lead bank monitoring in the IPO market? and (2) Does monitoring by lead investment banker lead to better post-issue performance? We find evidence consistent with the demand for underwriter monitoring in the IPO market. We examine variables which proxy for the incentives of lead underwriters to supply monitoring post-issue. These variables include lead investment bank reputation and whether warrants are issued to the underwriter by the issuing firm. We find that lead bank reputation is positively associated with the post-issue performance of IPO firms. We also examine whether additional valude added monitoring is provided by unaffiliated analysts. The number of unaffiliated analysts following is positively correlated with post-issue performance. Our results are consistent with thid party monitoring in the new issues market.
JEL Classification: G24, G34
Suggested Citation: Suggested Citation