I would like to thank this paper's reviewer for suggestions significantly improving the paper's quality. I would also like to thank John McConnell, Roger Bey, Tina Galloway, and participants at the Financial Management Association and the Southwest Finance Symposium for helpful comments. Any errors remain my responsibility.
UNDERWRITING SPREADS AND REPUTATIONAL CAPITAL: AN ANALYSIS OF NEW CORPORATE SECURITIES
Version of Record online: 27 AUG 2014
© The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 22, Issue 1, pages 15–28, Spring 1999
How to Cite
Carow, K. A. (1999), UNDERWRITING SPREADS AND REPUTATIONAL CAPITAL: AN ANALYSIS OF NEW CORPORATE SECURITIES. Journal of Financial Research, 22: 15–28. doi: 10.1111/j.1475-6803.1999.tb00712.x
- Issue online: 27 AUG 2014
- Version of Record online: 27 AUG 2014
When entering a new security market, investment banks must establish their reputation. This is done through direct experience in the security market or through reputational capital established in existing security markets. I examine the effects of underwriters' market reputation in publicly underwritten offerings in forty-three financial innovations and find more significant entry barriers for less prestigious underwriters. An analysis of underwriting spreads reveals first-issue pricing advantages due to reputational capital. Unlike the more prestigious underwriters, the less prestigious underwriters reduce spreads upon first entry into each new security market to overcome their lack of market reputation.