The Underwriter Persistence Phenomenon
University of Southern California - Marshall School of Business
April 26, 2006
This study presents new evidence that initial IPO returns have persistent underwriter-specific components. These components cannot be explained by existing measures of underwriter quality, underwriter service, or controls for several known predictors of initial IPO returns. Tests that trace the roots of persistence most broadly support theories of asymmetric information among underwriters. I present such a model, and consistent with its predictions, I find that high underpricing underwriters (1) are responsible for a majority of the partial adjustment phenomenon, (2) make more informed analyst revisions, (3) experience superior market share growth, and (4) are more likely to serve institutional clientele.
Number of Pages in PDF File: 51
Keywords: Initial Public Offers, IPOs, corporate finance, underwriters, initial returns, underpricing
JEL Classification: G24
Date posted: January 25, 2005