Work

Initial Public Offerings and Underwriter Reputation

Year: 1990

Type: article

Abstract: This paper examined the returns earned by subscribing to initial public offerings of equity (IPOs). Rock (1986) suggests that IPO returns are required by uninformed investors as compensation for the risk of trading against superior information. We show that IPOs with more informed investor capital require higher returns. The marketing underwriter's reputation reveals the expected level of “informed” activity. Prestigious underwriters are associated with lower risk offerings. With less risk there is less incentive to acquire information and fewer informed investors. Consequently, prestigious underwriters are associated with IPOs that have lower returns.

Source: The Journal of Finance

DOI: 10.1111/j.1540-6261.1990.tb02426_1.x

Authors: RICHARD CARTER, STEVEN MANASTER

Institutions: Commodity Futures Trading Commission, Iowa State University, University of Utah

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

OpenAlex ID: W4239275945

FWCI:

Cites: 23

Cited by: 35

Related to: 10