Underwriter Certification, Issuer-Underwriter Matching, and SEO Performance
50 Pages Posted: 17 Aug 2019 Last revised: 8 Jan 2020
Date Written: August 13, 2019
The introduction of deal types for issues of seasoned equity in which the offer follows quickly after the announcement highlights the role of underwriter certification in the performance of SEOs. Controlling for the matching between underwriters and issuing firms, we find that the quality of the underwriter has a positive relation to the market's response to the announcement of these accelerated SEOs. For the accelerated and bought deals, the discount of the offer price from the closing price the day before the offering (which represents a cost to the issuing firm) is significantly negatively related to underwriter quality. For fully marketed deals, however, these relationships are not significant. Issuing firms pay for the value provided by higher quality underwriters in the form of higher total fees.
Keywords: Season equity offer, Asymmetric information, One to many matching, Underwriter reputation, Control function approach
JEL Classification: D82, G32, G14
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