IPO Placement Risk and the Number of Co-Managers


  • We would like to thank Peter Dadalt, Ike Mathur, Jim Musumeci, Subhash C. Sharma, Robert Welker, Cynthia J. Campbell, and Arnold R. Cowan (the editors), and two anonymous referees for helpful comments. We are indebted to Jay Ritter for the use of his data.

* Corresponding author: Finance Department, Mailcode 4626, Southern Illinois University, Carbondale, IL 62901; Phone: 618-453-1429; Fax: 618-453-5626; E-mail: davidson@cba.siu.edu


Previous studies show that co-managers mainly affect initial public offering (IPO) aftermarket activities. We investigate the role of co-managers in IPO pre-market activities. We argue that co-managers help reduce IPO placement risk and hypothesize that IPO issuers hire more co-managers when placement risk is higher. We find the number of co-managers is positively associated with three proxies for placement risk. IPOs with more price uncertainty and high-tech IPOs hire more co-managers, while IPOs in regulated industries hire fewer co-managers. We also find larger IPOs, recent IPOs, and IPOs with more reputable lead underwriters hire more co-managers.