Clustered IPOs as a Commitment Device
48 Pages Posted: 14 Apr 2020 Last revised: 4 May 2021
Date Written: March 25, 2021
I model the strategic interaction of underwriters in accepting IPO mandates of ﬁrms with correlated values. Underwriters act as certiﬁers and increase the perceived value of issuing ﬁrms. Investors, however, take the agency conﬂict associated with the fee-paying structure of IPOs into account and discount the oﬀer price accordingly. By timely clustering of related IPOs across diﬀerent underwriters, investment banks expose themselves to the outcome of other concurrent IPOs resulting in a mutual disciplining eﬀect. In this way, underwriters can credibly commit themselves to the marketing of high-value ﬁrms only. The model suggests that underpricing levels might be a function of underwriter syndicate composition and provides an agency-based rationale for the
observed cyclicality in IPOs.
Keywords: Commitment Device, Underpricing, IPO waves, Underwriter Syndicate
JEL Classification: G24, G32
Suggested Citation: Suggested Citation