Journal of Financial Economics Vol. 102 No. 3 2011
Local underwriter oligopolies and IPO underpricing
Abstract
We develop a theory of initial public offering (IPO) underpricing based on differentiated underwriting services and localized competition. Even though a large number of investment banks compete for IPOs, if issuers care about non-price dimensions of underwriting, then the industry structure is best characterized as a series of local oligopolies. We test our model implications on all-star analyst coverage, industry expertise, and other non-price dimensions. Furthermore, we posit that venture capitalists (VCs) are especially focused on all-star analyst coverage, and develop the analyst lust theory of the underpricing of VC-backed IPOs. Consistent with this theory, we find that VC-backed IPOs are much more underpriced when they have coverage from an all-star analyst.
- DOI
- 10.1016/j.jfineco.2011.01.009
- Volume
- 102
- Issue
- 3
- Pages
- 579-601
- Language
- en
- Sources
- crossref bibtex:phds-export.bib openalex