Wanna Dance? How Firms and Underwriters Choose Each Other

49 Pages Posted: 9 Jun 2004

See all articles by Chitru S. Fernando

Chitru S. Fernando

University of Oklahoma - Michael F. Price College of Business

Vladimir A. Gatchev

University of Central Florida - Department of Finance

Paul A. Spindt

Tulane University - A.B. Freeman School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: January 2004

Abstract

We develop and test a theory explaining the equilibrium matching of issuers and underwriters. We assume that issuers and underwriters associate by mutual choice, and that underwriter ability and issuer quality are complementary. Our model implies that matching is positive assortative, and that matches are based on firms' and underwriters' elative characteristics at the time of issuance. The model predicts that the market share of top underwriters and their average issue quality varies inversely with issuance volume. Various cross-sectional patterns in underwriting spreads are consistent with equilibrium matching. We find strong empirical confirmation of our theory.

Keywords: Firm-underwriter choice; public equity offerings; investment banking

JEL Classification: C78, G24, G32, L14

Suggested Citation

Fernando, Chitru S. and Gatchev, Vladimir A. and Spindt, Paul A., Wanna Dance? How Firms and Underwriters Choose Each Other (January 2004). AFA 2005 Philadelphia Meetings. Available at SSRN: https://ssrn.com/abstract=554343 or http://dx.doi.org/10.2139/ssrn.554343

Chitru S. Fernando (Contact Author)

University of Oklahoma - Michael F. Price College of Business ( email )

Adams Hall
307 West Brooks Street
Norman, OK 73019-4004
United States
405-325-2906 (Phone)
405-325-7688 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/F/Chitru.Fernando-1/

Vladimir A. Gatchev

University of Central Florida - Department of Finance ( email )

Orlando, FL 32816-1400
United States
(407) 823-3694 (Phone)
(407) 823-6676 (Fax)

HOME PAGE: http://www.bus.ucf.edu/vgatchev/

Paul A. Spindt

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States
504-865-5413 (Phone)

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