Can Issuers Mitigate Underpricing by Hiring Pure Advisory Firms to Oversee Their IPOs?
61 Pages Posted: 12 Jun 2019 Last revised: 11 May 2020
Date Written: April 24, 2020
Issuers increasingly employ advisory firms (e.g. Moelis, Rothschild) to select underwriters, negotiate spreads and provide oversight during IPOs. We examine whether such advisers affect underpricing. Concealed within weak aggregate effects, we find significant heterogeneity amongst adviser types: Multi-task advisers (offering M&A alongside IPO services) are associated with higher first-day returns equivalent to $33mn ‘left-on-the-table’ for the median issuer; Specialist advisers (offering only IPO services) are associated with lower first-day returns equivalent to $56mn ‘saved’. We also find support for the existence of coalitions between multi-task advisers and underwriters, and for unsophisticated (small non-VC-backed) issuers suffering increased underpricing in advised IPOs.
Keywords: IPOs, underpricing, advisers, conflicts of interest, contracts
JEL Classification: G24, G30
Suggested Citation: Suggested Citation