The Reputation of Underwriters: A Test of the Bonding Hypothesis

44 Pages Posted: 5 Mar 2007 Last revised: 3 Aug 2010

See all articles by Gilberto R. Loureiro

Gilberto R. Loureiro

University of Minho - School of Economics and Management

Date Written: June 1, 2010

Abstract

In the spirit of the Bonding Hypothesis proposed by Stulz (1999) and Coffee (1999, 2002), I find that foreign firms that cross-list in the U.S. and undertake IPOs are more likely to employ reputable underwriters if the firms come from countries with poor shareholder protection. The additional monitoring provided by reputable underwriters may help overcome the skepticism of U.S. investors, and partially explains the higher valuation these firms obtain after the offering. There is, however, a price to pay for this bonding benefit. I find that issuers from countries with weaker shareholder protection tend to be more underpriced if they are sponsored by prestigious underwriters.

Keywords: bonding hypothesis, underwriter reputation, IPOs, cross-listing

JEL Classification: G24, G34

Suggested Citation

Loureiro, Gilberto R., The Reputation of Underwriters: A Test of the Bonding Hypothesis (June 1, 2010). Journal of Corporate Finance, Vol, 16, pp. 516-532. Available at SSRN: https://ssrn.com/abstract=965315 or http://dx.doi.org/10.2139/ssrn.965315

Gilberto R. Loureiro (Contact Author)

University of Minho - School of Economics and Management ( email )

Campus Gualtar
Braga, 4710-057
Portugal
+351-253-605553 (Phone)
+351-253-601380 (Fax)

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