Assortative Matching and Reputation in the Market for First Issues

47 Pages Posted: 2 Apr 2014 Last revised: 28 May 2016

Oktay Akkus

Bates White

J. Anthony Cookson

University of Colorado at Boulder - Leeds School of Business

Ali Hortacsu

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 27, 2016

Abstract

Using a tractable structural model of the matching equilibrium between underwriters and equity issuing firms, we study the determinants of value in underwriter-firm relationships. Our estimates imply that high underwriter reputation is associated with 10% to 15% greater long run market value for the issuing firm. Using the structural model, we quantify two distinct effects of underwriter reputation: (i) an issuer-side certification effect where greater reputation decreases underpricing, which has been stable and negative since 1985, and (ii) a subscriber-side clientele effect where high prestige underwriters utilize greater underpricing to reward investment clients, which became significantly positive only after 1990.

Keywords: two-sided matching, structural estimation, market for first issues

JEL Classification: G24, C34, C78

Suggested Citation

Akkus, Oktay and Cookson, J. Anthony and Hortacsu, Ali, Assortative Matching and Reputation in the Market for First Issues (May 27, 2016). Available at SSRN: https://ssrn.com/abstract=2419277 or http://dx.doi.org/10.2139/ssrn.2419277

Oktay Akkus

Bates White ( email )

1300 I Street NW
Washington, DC 20005
United States

J. Anthony Cookson (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Ali Hortacsu

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-5841 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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