On the Marketing of IPOs

50 Pages Posted: 18 Jan 2006

See all articles by Douglas O. Cook

Douglas O. Cook

University of Alabama - Culverhouse College of Commerce & Business Administration

Robert L. Kieschnick

University of Texas at Dallas

Robert A. Van Ness

University of Mississippi - Department of Finance

Abstract

Derrien (2005) and Ljungqvist, Nanda, and Singh (2003) build upon the work of Miller (1977) and claim that issuers and the regular customers of investment bankers benefit from the presence of sentiment investors (noise traders) in the market for an IPO. Thus we argue that investment bankers have an incentive to promote an IPO in order to induce sentiment investors into the market for it. Consistent with this motivation and these models, we expect that the promotional efforts of investment bankers should influence the compensation of investment bankers, the valuation of an IPO, its initial returns and trading, the wealth gains of inside shareholders, and the likelihood that an issuer switches investment bankers for a subsequent seasoned equity offering. Examining data for a sample of IPOs from 1993 through 2000, we find evidence consistent with these predictions, and so with the proposition that an investment banker's ability to market an IPO to sentiment investors is important.

Keywords: IPO, underwriting, marketing

JEL Classification: G12, G24, G32, M31

Suggested Citation

Cook, Douglas O. and Kieschnick, Robert L. and Van Ness, Robert A., On the Marketing of IPOs. Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=831825 or http://dx.doi.org/10.2139/ssrn.430021

Douglas O. Cook

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States
205-348-8971 (Phone)
205-348-0590 (Fax)

Robert L. Kieschnick (Contact Author)

University of Texas at Dallas ( email )

800 W. Campbell Rd, SM31
Richardson, TX 75080
United States
972-883-6273 (Phone)

HOME PAGE: http://www.utdallas.edu/~rkiesch/

Robert A. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

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