Underwriter reputation and the underwriter–investor relationship in IPO markets

Suman Neupane, Chandra Thapa

Research output: Contribution to journalArticle

7 Citations (Scopus)

Abstract

Using data from the unique setting of Indian IPOs, this study examines the underwriter–investor relationship based on underwriter reputation. We find that high reputation and low reputation underwriters have strong relationships with different sets of investors. While large institutional investors participate early in IPOs managed by high reputation underwriters, high net worth investors appear to do the same in IPOs managed by low reputation underwriters. The varying nature of relationships with investors also has important consequences for IPO pricing. Our analysis of the setting of the offer price shows that reputation matters greatly for high reputation underwriters. Low reputation underwriters, on the other hand, appear to price aggressively and set high offer prices even when institutional participation is negligible.
LanguageEnglish
Pages105-126
Number of pages22
JournalJournal of International Financial Markets Institutions and Money
Volume24
DOIs
Publication statusPublished - Apr 2013

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Underwriter reputation
Investors
Underwriters
Pricing
Institutional investors
Net worth
Participation

Keywords

  • initial public offerings
  • underwriter reputation
  • investor–underwriter relationship
  • institutional investors
  • pricing discretion

Cite this

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abstract = "Using data from the unique setting of Indian IPOs, this study examines the underwriter–investor relationship based on underwriter reputation. We find that high reputation and low reputation underwriters have strong relationships with different sets of investors. While large institutional investors participate early in IPOs managed by high reputation underwriters, high net worth investors appear to do the same in IPOs managed by low reputation underwriters. The varying nature of relationships with investors also has important consequences for IPO pricing. Our analysis of the setting of the offer price shows that reputation matters greatly for high reputation underwriters. Low reputation underwriters, on the other hand, appear to price aggressively and set high offer prices even when institutional participation is negligible.",
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AB - Using data from the unique setting of Indian IPOs, this study examines the underwriter–investor relationship based on underwriter reputation. We find that high reputation and low reputation underwriters have strong relationships with different sets of investors. While large institutional investors participate early in IPOs managed by high reputation underwriters, high net worth investors appear to do the same in IPOs managed by low reputation underwriters. The varying nature of relationships with investors also has important consequences for IPO pricing. Our analysis of the setting of the offer price shows that reputation matters greatly for high reputation underwriters. Low reputation underwriters, on the other hand, appear to price aggressively and set high offer prices even when institutional participation is negligible.

KW - initial public offerings

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KW - institutional investors

KW - pricing discretion

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