Conflict of Interest or Certification? Evidence from IPOs Underwritten by the Firm's Relationship Bank
37 Pages Posted: 15 Oct 2004 Last revised: 3 Jun 2009
Date Written: January 12, 2009
We examine the long-term return performance and fundamental valuation of IPOs underwritten by relationship banks. We find that over one- to three-year horizons these IPOs yield returns similar to those on IPOs underwritten by non-relationship banks. Moreover, we show that there is selection among firms that go public with their relationship bank. Investors value these new issues higher than similar IPOs underwritten by non-relationship banks. These findings support the certification role of relationship banks and suggest that, in this respect, the effect of the 1999 repeal of Sections 20 and 32 of the Glass-Steagall Act has not been negative.
Keywords: Conflicts of interest, lending relationships, IPOs, Glass Steagall Act
JEL Classification: G20, G21, G24, G30
Suggested Citation: Suggested Citation