Underwriter Activity and Performance of Initial Public Offerings In Imperial Germany Between 1897-1914: the Role of Reputation (original) (raw)
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The Economic History Review, 2012
type="main"> Large universal banks played a major role in Germany's industrialization because they provided loans to industry and thereby helped firms to overcome liquidity constraints. Previous research has also argued that they were equally important for the German stock market. This article provides quantitative and qualitative evidence that although the market for underwriters was dominated by a small oligopoly of six large banks, there was still perceptible competition, which kept fees and short-run profits low. Another interesting finding presented here is the absence of a signalling effect to investors. Neither underpricing nor the one-year performance was different for the IPOs issued by one of the Big Six. Thus, although the German IPO business was in the hands of a small oligopoly, investors did not benefit from the lack of competition. One explanation is that the quality of IPOs on the German stock market of the time was very good in general as a result o...
Ranking Underwriters of European IPOs
European Financial Management, 2014
Reputational capital is a valuable asset for underwriters in IPO markets. Existing measures of their reputation are tailored to the US market, where the same established investment banks typically handle IPOs on both the NYSE and NASDAQ. The widely used Carter-Manaster rankings do not grade the reputations of underwriters of 67.5% of IPOs in Europe. The European IPO market is a series of domestic markets, where most underwriters operate almost entirely in a single country. This paper presents European-based rankings of 260 underwriters of 3,776 IPOs in France, Italy, Germany, and the UK from 1995 to 2010, with the number of IPOs underwritten and the amount of capital raised.
Underwriter Networks in Initial Public Offerings
SSRN Electronic Journal, 2014
Using various measures from Social Network Analysis (SNA), we analyze, for the first time in the literature, how various IPO characteristics are affected by the location of the lead IPO underwriter in the network of investment banks generated by its participation in various IPO underwriting syndicates. We hypothesize that investment banking networks perform two possible information-related roles during the IPO process: an information extraction role, where its investment banking network helps the lead underwriter extract credible information useful in pricing the IPO from various institutional investors; or an information dissemination role, where the lead underwriter is able to use its investment banking network to credibly convey its favorable private information about the IPO firm to various institutional investors. Based on these two roles, we develop testable hypotheses relating the location of the IPO underwriter in investment banking networks to the following IPO characteristics: IPO price revision during book-building; IPO and secondary market valuations; IPO initial returns; participation by financial market players such as financial analysts and institutional investors; and long-run post-IPO stock returns. Consistent with our hypotheses, our empirical findings show that more central lead IPO underwriters are associated with larger price revisions; greater IPO and after-market valuations; larger IPO initial returns; greater institutional investor equity holdings and analyst coverage immediately post-IPO; and greater long-run stock returns. Most of these findings are robust to controlling for the endogenous matching between underwriter centrality and IPO firm quality, and are also robust to controlling for various measures of lead underwriter reputation. Overall, our findings are consistent with a strong information dissemination role for investment banking networks in IPOs.
The Role of the Underwriter in the IPO Aftermarket
2005
IPO underwriters dominate aftermarket trading but often follow rather than lead in price discovery. This suggests that the underwriter shares a certification, external monitoring and signaling role with aftermarket brokers, venture capitalists and founder-owners retaining equity. In this paper we investigate the cross-sectional determinants of the role of the underwriter in aftermarket price discovery. Not surprisingly, the underwriters' role expands with greater issue uncertainty and diminishes with venture capitalist involvement and greater retention of founder-owner equity. Our novel result is that verifiable facts are not a substitute for, but a complement to, underwriter certification and advice. Specifically, the underwriter's contribution to price discovery increases with the magnitude and complexity of the supplier and customer contracts reported in the prospectus. It declines when the IPO is first in a technology or product space, suggesting that verification processes (not de novo information production) are the key function of the underwriter.
The Changing Influence of Underwriter Prestige on Initial Public Offerings
Existing research finds that underwriter prestige is related to underpricing among initial public offerings. However, the relation is not stable through time. This study finds that the relation changed from negative to positive in 1993. When the sample is divided by level of underwriter prestige, underpricing by high-prestige underwriters exceeded underpricing by low-prestige underwriters for 18 of 20 years following 1993. The difference in underpricing between high-and low-prestige underwriters peaked in 1999 but continued after the market correction in 2000. High-prestige underwriters are responsible for the shift in underpricing that occurred in 1993.
Asia-Pacific Journal of Financial Studies, 2009
This study empirically examines the role of underwriters' reputations on the IPO pricing process and its effect on subsequent initial returns. We analyzed 275 IPOs between July, 2002 and December, 2006. The reputation of each underwriters was analyzed based on the data reflecting their performances over the preceding three years. The analysis considered the following: number of offerings, the natural logarithm of average offering size, the relative offering size, the inverse of average underpricing ratio, and the ratio of refraining from undertaking a market stabilization activity or exercising a putback option. The logarithm of the underwriter's asset size and the composite index of the above six reputation variables are included in the variable we call "reputation." We find that underwriters with higher reputation exercise more bargaining power than either issuing firms or institutional investors in the offer price decision process. On the other hand, the underwriters' certification role is not sufficiently carried out to build a reputation on price discovery. We propose an incentive system that would encourage voluntary assessment of underwriters' competency, which can ultimately bolster their reputations in terms of their price discovery ability.
What order flow reveals about the role of the underwriter in IPO aftermarkets
International Journal of Managerial Finance, 2009
IPO underwriter-brokers dominate aftermarket trading but often follow rather than lead in price discovery. This suggests that the underwriter shares a certification, external monitoring, and signaling role with aftermarket brokers, venture capitalists, and founder-owners retaining equity. In this paper we investigate the cross-sectional determinants of the role of the underwriter in aftermarket price discovery. The underwriters' role expands with greater issue uncertainty and diminishes with venture capitalist involvement and greater retention. Issue uncertainty is measured in pages of idiosyncratic risk factors and in the delay between the announcement and completion of the issue. Our first novel result is that verifiable facts are not a substitute for, but a complement to, underwriter certification and advice. Specifically, the underwriter's contribution to price discovery increases with the number of supplier and customer contracts reported in the prospectus. Secondly, the underwriter's role in price discovery declines when the IPO is first in a new technology or product space. These findings indicate that the verification process (not de novo information production) is the key function of the underwriter Keywords: Initial public offering, IPO, underwriter, venture capitalist Classification: G24, G32
When the Underwriter Is the Market Maker: An Examination of Trading in the IPO Aftermarket
The Journal of Finance, 2000
This paper examines aftermarket trading of underwriters and unaffiliated market makers in the three month period after an IPO. We find that the lead underwriter is always the dominant market maker, he takes substantial inventory positions in the aftermarket trading, and co-managers play a negligible role in aftermarket trading. The lead underwriter engages in stabilization activity for less successful IPOs, and uses the overallotment option to reduce his inventory risk. Compensation to the underwriter arises primarily from fees, but aftermarket trading does generate positive profits, which are positively related to the degree of underpricing.
2011
The article offers a quantitative analysis of the i mpact of large Universal banks on the market for Initial public offerings and provides evidence that b nks such as Deutsche Bank and Dresdner Bank which largely dominated the market for loans, did n ot dominate the German stock market. Indeed the stock market seemed to have been efficient: price c ompetition between banks seemed to have been quite strong, firm loyalty depended on performance rather than reputation of banks and most firms listed on the stock market survived the first years .
Underwriter networks, investor attention, and initial public offerings
Journal of Financial Economics, 2016
Using various centrality measures from social network analysis, we analyze how the loca- tion of a lead initial public offering (IPO) underwriter in its network of investment banks affects various IPO characteristics. We hypothesize that investment banking networks allow lead IPO underwriters to induce institutions to pay attention to the firms they take pub- lic and to perform two information-related roles during the IPO process: an information dissemination role, in which the lead underwriter uses its investment banking network to disseminate noisy information about various aspects of the IPO firm to institutional investors; and an information extraction role, in which the lead underwriter uses its invest- ment banking network to extract information useful in pricing the IPO firm equity from institutional investors. Based on these two roles, we develop testable hypotheses relating lead IPO underwriter centrality to the IPO characteristics of firms they take public. We find that more central lead IPO underwriters are associated with larger absolute values of offer price revisions, greater IPO and after-market valuations, larger IPO initial returns, greater institutional investor equity holdings and analyst coverage immediately post-IPO, greater stock liquidity post-IPO, and better long-run stock returns. Using a hand-collected data set of pre-IPO media coverage as a proxy for investor attention, we show that an important channel through which more central lead IPO underwriters achieve favorable IPO characteristics is by attracting greater investor attention to the IPOs underwritten by them.