To What Extent Are Investment Bank-Differentiating Factors Relevant for Firms Floating Moderate-Sized IPOs?

49 Pages Posted: 7 May 2019

See all articles by Kedar Kulkarni

Kedar Kulkarni

affiliation not provided to SSRN

Tarun Sabarwal

University of Kansas

Date Written: June 7, 2006

Abstract

One explanation provided for the relatively high and increasingly stable spreads for moderate - sized IPOs ($20-$80 million) documented in Chen and Ritter (2000) is that issuing firms focus less on price and more on a combination of investment bank-differentiating factors (such as underwriter prestige, analyst coverage, industry expertise, under-pricing, price stabilization activities, liquidity provision, and so on,) and banks use industry-based differentiation as a source of market power. Using a new approach developed in a model of firm location choice due to Ellison and Glaeser (1997), this paper presents some evidence on the combined relevance of such bank-differentiating factors, over and above bank size, for firms choosing investment banks for floating IPOs. For moderate-sized IPOs, there is a little, but not much evidence that such factors are a good explanation for high and increasingly stable spreads. Other than in a few of the largest industries, bank-differentiating factors are not significantly relevant for a large proportion of industries. Moreover, one aggregate measure of differentiation is declining over time.

Keywords: Investment Banking, Initial Public Offering, Differentiating Factors, Seven Percent Puzzle

JEL Classification: G24, G31, L11

Suggested Citation

Kulkarni, Kedar and Sabarwal, Tarun, To What Extent Are Investment Bank-Differentiating Factors Relevant for Firms Floating Moderate-Sized IPOs? (June 7, 2006). Available at SSRN: https://ssrn.com/abstract=3367865 or http://dx.doi.org/10.2139/ssrn.3367865

Kedar Kulkarni

affiliation not provided to SSRN

Tarun Sabarwal (Contact Author)

University of Kansas ( email )

1415
Lawrence, KS 66045
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
15
Abstract Views
271
PlumX Metrics