Reciprocity in Syndicate Participation and Issuer's Welfare: Evidence from Initial Public Offerings

Asia-Pacific Journal of Financial Studies, Vol. 40, No. 1 (February 2011), pp. 138-198.

Posted: 28 Jun 2015

See all articles by Cheolwoo Lee

Cheolwoo Lee

Ferris State University

Jin Jeon

Dongguk University

Bum Kim

Soongsil University

Date Written: February 2011

Abstract

Using 1043 IPOs from January 1997 to June 2002, we examine whether syndicate participation is reciprocal and also whether such reciprocity is beneficial to issuers. Our empirical results show that reciprocal syndicates appear to make a lower level of price revision (lower information production), which lowers the amount of capital to be raised through going public, and that the lead underwriter in the reciprocal syndicate provides less analyst coverage. We interpret the lower price revision level as an intention to exert less marketing effort and such intention is, in part, embodied in the form of less analyst coverage by the lead underwriter in the aftermarket. In addition, reciprocal syndicates do not provide greater certification services. We find that reciprocal syndicates charge higher, or at least not lower, underwriting spreads than non-reciprocal syndicates. Evidence overall shows that reciprocity is less beneficial to issuers but, rather, it appears to be established and maintained for the benefit of underwriters.

Keywords: Syndicate; IPO; Price revision; Analyst coverage

JEL Classification: G24

Suggested Citation

Lee, Cheolwoo and Jeon, Jin and Kim, Bum, Reciprocity in Syndicate Participation and Issuer's Welfare: Evidence from Initial Public Offerings (February 2011). Asia-Pacific Journal of Financial Studies, Vol. 40, No. 1 (February 2011), pp. 138-198. . Available at SSRN: https://ssrn.com/abstract=2623995

Cheolwoo Lee (Contact Author)

Ferris State University ( email )

119 South State Street, BUS 366
Big Rapids, MI 49307
United States

Jin Jeon

Dongguk University ( email )

26 Pil-dong 3-ga
Jung-gu
Seoul, Seoul 100-715
Korea, Republic of (South Korea)

Bum Kim

Soongsil University ( email )

School of Finance
509 Venture Bldg
Seoul, Seoul
Korea, Republic of (South Korea)
82-2-820-0563 (Phone)

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