Elite Law Firms in the IPO Market

50 Pages Posted: 19 Jul 2017 Last revised: 1 Sep 2019

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: July 1, 2019

Abstract

IPOs with underwriters that retain an elite law firm exhibit a lower average first-day return. This empirical pattern remains after controlling for an extensive set of proxies associated with existing explanations 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 this selection channel and our 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 (July 1, 2019). 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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