Elite Law Firms in the IPO Market

61 Pages Posted: 19 Jul 2017 Last revised: 16 Nov 2018

See all articles by Pablo Moran

Pablo Moran

University of Calgary - Haskayne School of Business

J. Ari Pandes

University of Calgary - Haskayne School of Business

Date Written: October 2018

Abstract

IPOs with underwriters that retain an elite law firm exhibit a lower average first-day return. This pattern cannot be explained by proxies associated with existing theories of IPO initial returns. We rationalize this finding with a pre-IPO pricing model, in which underwriters convey their lack of conflicts of interest to the issuer by engaging an elite law firm. Consistent with the model’s predictions, we find a lower incidence of elite law firm involvement and a larger difference in average first-day return associated with elite law firms during the dot-com period. We document similar findings with respect to the dispersion of IPO first-day returns and a pattern in the issuers’ re-hiring decision of investment banks consistent with our theory.

Keywords: Certification; Conflicts of Interest; Underwriter; Legal Counsel

JEL Classification: G24; G32

Suggested Citation

Moran, Pablo and Pandes, J. Ari, Elite Law Firms in the IPO Market (October 2018). Available at SSRN: https://ssrn.com/abstract=3002850 or http://dx.doi.org/10.2139/ssrn.3002850

Pablo Moran (Contact Author)

University of Calgary - Haskayne School of Business ( email )

Calgary, Alberta
Canada

J. Ari Pandes

University of Calgary - Haskayne School of Business ( email )

2500 University Drive NW
Calgary, Alberta T2N 1N4
Canada
403 220-4350 (Phone)

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