Journal of Corporate Finance Vol. 32 2015
Prestige without purpose? Reputation, differentiation, and pricing in U.S. equity underwriting
Abstract
Clustering of IPO underwriting spreads at 7% poses two important puzzles: Is the market for U.S. equity underwriting services anti-competitive and why do equity underwriters invest in reputation-building? This study helps resolve both puzzles. Modeling endogeneity of firm-underwriter choice using a two-sided matching approach, we provide strong evidence of price and service differentiation based on underwriter reputation. High-reputation banks receive average reputational premia equaling 0.65% (0.47%) of average IPO (SEO) underwritten proceeds, which constitutes 10% (13%) of their underwriting spreads. Equity issuers working with high-reputation underwriters receive significant benefits, including higher offer values and lower percentage spreads net of reputational premia.
- DOI
- 10.1016/j.jcorpfin.2015.04.002
- Volume
- 32
- Pages
- 41-63
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib