Social Ties and IPO Outcomes

47 Pages Posted: 23 Nov 2012 Last revised: 15 May 2015

John Cooney Jr.

Texas Tech University - Rawls College of Business

Leonardo Madureira

Case Western Reserve University - Weatherhead School of Management

Ajai K. Singh

Department of Finance, University of Central Florida

Ke Yang

Lehigh University

Date Written: May 6, 2015

Abstract

We examine the role of social ties in IPO underwriting syndicate formation and find that an investment bank is more likely to be included in the underwriting syndicate when it is connected to the IPO firm through interpersonal social ties between the respective executives and directors. These social ties generate better outcomes, consistent with a quid pro quo arrangement between the respective parties. The investment bank benefits by receiving higher compensation, a more senior role in the IPO, and greater share allocations. For the IPO firm, the presence of social ties between the IPO issuer and the chosen underwriters is associated with net wealth gains for its pre-IPO shareholders.

Keywords: G24, G32

JEL Classification: Social Ties, IPOs, Investment Banking, Underwriters

Suggested Citation

Cooney, John and Madureira, Leonardo and Singh, Ajai K. and Yang, Ke, Social Ties and IPO Outcomes (May 6, 2015). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2179491 or http://dx.doi.org/10.2139/ssrn.2179491

John W. Cooney Jr.

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States
806-834-1536 (Phone)

Leonardo Madureira (Contact Author)

Case Western Reserve University - Weatherhead School of Management ( email )

364 PBL Building
Cleveland, OH 44106
United States
216-368-5003 (Phone)

HOME PAGE: http://faculty.weatherhead.case.edu/madureira/

Ajai K. Singh

Department of Finance, University of Central Florida ( email )

College of Business Administration
12744 Pegasus Drive
Orlando, FL 32816
United States
407-823-0761 (Phone)
407-823-6676 (Fax)

Ke Yang

Lehigh University ( email )

621 Taylor Street
Bethlehem, PA 18015
United States
6107583684 (Phone)
6107586429 (Fax)

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