Underwriter Networks, Investor Attention, and Initial Public Offerings

65 Pages Posted: 19 Jun 2014 Last revised: 16 Dec 2017

See all articles by Emanuele Bajo

Emanuele Bajo

University of Bologna - Department of Economics

Thomas J. Chemmanur

Boston College - Carroll School of Management

Karen Simonyan

Suffolk University - Department of Finance

Hassan Tehranian

Boston College - Department of Finance

Date Written: December 19, 2015

Abstract

Using various “centrality” measures from Social Network Analysis (SNA), we analyze how the location of a lead IPO underwriter in its network of investment banks affects various IPO characteristics. We hypothesize that investment banking networks allow lead IPO underwriters to induce institutions to pay attention to the firms they take public and to perform two information-related roles during the IPO process: an information dissemination role, where the lead underwriter uses its investment banking network to disseminate noisy information about various aspects of the IPO firm to institutional investors; and an information extraction role, where the lead underwriter uses its investment banking network to extract information useful in pricing the IPO firm equity from institutional investors. Based on these two roles, we develop testable hypotheses relating lead IPO underwriter centrality to the IPO characteristics of firms they take public. We find that more central lead IPO underwriters are associated with larger absolute values of offer price revisions; greater IPO and after-market valuations; larger IPO initial returns; greater institutional investor equity holdings and analyst coverage immediately post-IPO; greater stock liquidity post-IPO; and better long-run stock returns. Using a hand-collected data set of pre-IPO media coverage as a proxy for investor attention, we show that an important channel through which more central lead IPO underwriters achieve favorable IPO characteristics is by attracting greater investor attention to the IPOs underwritten by them.

Keywords: Underwriter Centrality, Initial Public Offerings, Underwriter Networks

JEL Classification: G24, G30, G39

Suggested Citation

Bajo, Emanuele and Chemmanur, Thomas J. and Simonyan, Karen and Tehranian, Hassan, Underwriter Networks, Investor Attention, and Initial Public Offerings (December 19, 2015). Journal of Financial Economics 122, no. 2 (2016): 376-408. Available at SSRN: https://ssrn.com/abstract=2456237 or http://dx.doi.org/10.2139/ssrn.2456237

Emanuele Bajo

University of Bologna - Department of Economics ( email )

Bologna
Italy

Thomas J. Chemmanur

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://https://www2.bc.edu/thomas-chemmanur/

Karen Simonyan (Contact Author)

Suffolk University - Department of Finance ( email )

8 Ashburton Place-Beacon Hill
Boston, MA 02108-2770
United States
(617) 973-5385 (Phone)

Hassan Tehranian

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-3944 (Phone)
617-552-0431 (Fax)

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