Law Firm Prestige and Performance in IPOs: Underwriters' Counsel as Gatekeeper or Turnstile

Posted: 5 Feb 2004  

Royce de Rohan Barondes

University of Missouri-Columbia School of Law

Charles Nyce

Florida State University

Gary C. Sanger

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

Date Written: September 2003

Abstract

We investigate the relationship between pricing in an initial public offering (IPO) and the prestige of the participating underwriters' law firm. We hypothesize law firm quality affects how law firms perform their obligations in IPOs - more prestigious law firms acting more independently. Consistent with this hypothesis, controlling for endogeneity of choice of underwriters' counsel, we find a negative relationship between pre-IPO price adjustment and the participation of prestigious underwriters' counsel. We also find a negative relationship between the participation of prestigious underwriters' counsel and initial return, which is consistent with market trading reflecting the decreased risk associated with offerings involving prestigious underwriters' counsel. Lastly, we find certain observable characteristics indicating diminished likelihood of undisclosed negative information (venture backing and quality of the issuer's counsel) are associated with an increased likelihood use of prestigious underwriters' counsel.

Keywords: Initial public offerings, law firm prestige, underwriting

JEL Classification: G24, K22

Suggested Citation

Barondes, Royce de Rohan and Nyce, Charles and Sanger, Gary C., Law Firm Prestige and Performance in IPOs: Underwriters' Counsel as Gatekeeper or Turnstile (September 2003). CORI Working Paper No. 03-08. Available at SSRN: https://ssrn.com/abstract=481983

Royce De Rohan Barondes (Contact Author)

University of Missouri-Columbia School of Law ( email )

Missouri Avenue & Conley Avenue
Columbia, MO 65211
United States
573-882-1109 (Phone)
573-882-4984 (Fax)

HOME PAGE: http://www.missouri-k.com

Charles Nyce

Florida State University ( email )

821 Academic Way
349 RBB, College of Business
Tallahassee, FL 32306
United States
850-645-8392 (Phone)

Gary C. Sanger

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration ( email )

2163 CEBA
Baton Rouge, LA 70803-6308
United States
225-578-6353 (Phone)
225-578-6366 (Fax)

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