College of Business Administration, Iowa State University and the Commodity Futures Trading Commission, Division of Economic Analysis, respectively. Dr. Manaster was at the University of Utah during the conduct of most of this research. The views expressed are solely those of the authors and do not purport to represent those of the Commodity Futures Trading Commission or its staff. We would like to acknowledge the useful comments of our colleagues Sanjai Bhagat, Jeff Coles, Dick Jefferis, Uri Lowenstein, and Jay Ritter. Our interactions with Dick Jefferis in particular helped to identify and clarify several critical issues. We would also like to thank Jay Ritter for the provision of data. Support from the University of Utah Graduate School of Business, the Garn Institute of Finance, and Iowa State University is gratefully acknowledged. Substantial technical assistance was provided by Denise Woodbury. We would also like to thank the staff at the Chicago Library of Arthur Andersen and Company for their assistance. We alone are responsible for any errors or omissions.
Initial Public Offerings and Underwriter Reputation
Article first published online: 30 APR 2012
1990 The American Finance Association
The Journal of Finance
Volume 45, Issue 4, pages 1045–1067, September 1990
How to Cite
CARTER, R. and MANASTER, S. (1990), Initial Public Offerings and Underwriter Reputation. The Journal of Finance, 45: 1045–1067. doi: 10.1111/j.1540-6261.1990.tb02426.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
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.