The Role of Investment Bank Reputation and Relationships in Equity Private Placements

48 Pages Posted: 18 May 2011

See all articles by Otgontsetseg Erhemjamts

Otgontsetseg Erhemjamts

Bentley University - Department of Finance; Bentley University

Kartik Raman

Bentley University

Date Written: May 2, 2011

Abstract

We explore the role of placement agents in equity private placements. Reputable agents are more likely to place shares of firms that have performed better and that have had frequent prior relationships with the agent. Controlling for self-selection and endogeneity, firms using reputable agents offer smaller price discounts. However, issuers having frequent prior relationships with placement agents incur higher gross spreads. While the results support the certification role of investment banks in private placements, they also shed light on the costs incurred by issuers that frequently rely on the same investment bank.

Keywords: Information, reputation, relationships, investment bank, private placement

JEL Classification: G14, G24, G32

Suggested Citation

Erhemjamts, Otgontsetseg and Raman, Kartik, The Role of Investment Bank Reputation and Relationships in Equity Private Placements (May 2, 2011). Journal of Financial Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1844618

Otgontsetseg Erhemjamts (Contact Author)

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States
781-891-2823 (Phone)

Bentley University ( email )

175 Forest Street
Waltham, MA 02145
United States
781-891-2823 (Phone)
781-891-2896 (Fax)

Kartik Raman

Bentley University ( email )

175 Forest Street
Waltham, MA 02154
United States

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