Can Issuers Mitigate Underpricing by Hiring Pure Advisory Firms to Oversee Their IPOs?

61 Pages Posted: 12 Jun 2019 Last revised: 11 May 2020

See all articles by Emmanuel Pezier

Emmanuel Pezier

City University London - Sir John Cass Business School

Date Written: April 24, 2020

Abstract

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

Pezier, Emmanuel, Can Issuers Mitigate Underpricing by Hiring Pure Advisory Firms to Oversee Their IPOs? (April 24, 2020). Available at SSRN: https://ssrn.com/abstract=3400906 or http://dx.doi.org/10.2139/ssrn.3400906

Emmanuel Pezier (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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