AN ANALYSIS OF THE UNDERWRITER SELECTION PROCESS FOR INITIAL PUBLIC OFFERINGS

Glenn A. Wolfe, Elizabeth S. Cooperman and Stephen P. Ferris

Journal of Financial Research, 1994, vol. 17, issue 1, 77-90

Abstract: This study extends previous research that shows prestigious underwriters avoided underwriting smaller, more speculative initial public offerings (IPOs) during a post‐SEC period, 1966–77. Estimating a logit model with a sample of 1,192 IPOs from 1977 to 1988, we evaluate the effect of offering characteristics and prevailing market conditions on the probability a prestigious investment banker will underwrite an IPO. Similar to previous studies, we find that prestigious underwriters avoid smaller, riskier issues. However, we also find stock market volatility, interest rate volatility, and the strength and profitability of the recent market for seasoned new issues to be important determinants of a prestigious underwriter's decision to underwrite an IPO.

Date: 1994
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