Investment Banking, Reputation and the Underpricing of Initial Public Offerings

Randolph P. Beatty and Jay Ritter

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: This paper develops and tests two propositions. We demonstrate that there is a monotone relation between the (expected) underpricing of an initial public offering and the uncertainty of investors regarding its value. We also argue that the resulting underpricing equilibrium is enforced by investment bankers, who have reputation capital at stake. An investment banker who "cheats" on this underpricing equilibrium will lose either potential investors (if it doesn't underprice enough) or issuers (if it underprices too much), and thus forfeit the value of its reputation capital. Empirical evidence supports our propositions.

References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Investment banking, reputation, and the underpricing of initial public offerings (1986)
Working Paper: Investment Banking, Reputation and the Underpricing of Initial Public Offerings
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fth:pennfi:02-85

Access Statistics for this paper

More papers in Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Krichel ().