Universal Banking, Asset Management, and Stock Underwriting

Abstract

This paper examines a group of IPO underwriters that also manage institutional funds from 1993 through 1998. We find that there is a statistical difference between the average fund holdings (1.24% of shares outstanding) of IPOs for institutions that underwrite a particular IPO and the fund holdings (0.92%) of institutions that do not underwrite the same IPO. We provide evidence that underwriters use their institutional funds as vehicles to help them earn more equity underwriting business. We also show that IPO underwriters use their superior information to earn annualized excess returns 7.6% above non underwriters, benefiting their institutional investors.

Keywords: universal banking, IPOs, asset management, underwriter