Prestige Without Purpose? Reputation, Differentiation, And Pricing In U.S. Equity Underwriting
Keywords
Equity underwriting; Firm-underwriter matching; Investment banking; Underwriter reputation; Underwriting spreads; Underwriting syndicates
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.
Publication Date
6-1-2015
Publication Title
Journal of Corporate Finance
Volume
32
Number of Pages
41-63
Document Type
Article
Personal Identifier
scopus
DOI Link
https://doi.org/10.1016/j.jcorpfin.2015.04.002
Copyright Status
Unknown
Socpus ID
84927918039 (Scopus)
Source API URL
https://api.elsevier.com/content/abstract/scopus_id/84927918039
STARS Citation
Fernando, Chitru S.; Gatchev, Vladimir A.; May, Anthony D.; and Megginson, William L., "Prestige Without Purpose? Reputation, Differentiation, And Pricing In U.S. Equity Underwriting" (2015). Scopus Export 2015-2019. 835.
https://stars.library.ucf.edu/scopus2015/835