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The Role of IPO Underwriting Syndicates: Pricing, Information Production, and Underwriter Competition

Authors

  • SHANE A. CORWIN,

    1. 1Mendoza College of Business, University of Notre Dame
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  • PAUL SCHULTZ

    1. 1Mendoza College of Business, University of Notre Dame
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    • Shane A. Corwin and Paul Schultz are with Mendoza College of Business, University of Notre Dame. We thank Rick Green and an anonymous referee for valuable suggestions. We also thank Andrew Blum, Stuart Cable, Hsuan-Chi Chen, Michel Habib, Andrew Karolyi, Alexander Ljungqvist, Michelle Lowry, Jay Ritter, Ann Sherman, Per Strömberg, Britt Tunick, Bill Wilhelm, Kent Womack, members of the Securities Industry Association Syndicate Committee, participants at the NYSE/Stanford Joint Conference on Entrepreneurial Finance and Initial Public Offerings, participants at the Second EVI Conference on Entrepreneurship, Venture Capital, and Initial Public Offerings at NYU, and seminar participants at Dartmouth College, the University of Notre Dame, the Ohio State University, and Pennsylvania State University for comments. We are grateful to I/B/E/S for providing data on analyst coverage and to Jay Ritter for providing underwriter rankings.


ABSTRACT

We examine syndicates for 1,638 IPOs from January 1997 through June 2002. We find strong evidence of information production by syndicate members. Offer prices are more likely to be revised in response to information when the syndicate has more underwriters and especially more co-managers. More co-managers also result in more analyst coverage and additional market makers following the IPO. Relationships between underwriters are critical in determining the composition of syndicates, perhaps because they mitigate free-riding and moral hazard problems. While there appear to be benefits to larger syndicates, we discuss several factors that may limit syndicate size.

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