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The Quality and Price of Investment Banks’ Service: Evidence from the PIPE Market


  • This paper was partially conducted while Dai was at the Anderson School of Management at the University of New Mexico and while Jo was on sabbatical leave with the Monterey Institute of International Studies. We would like to thank the editor Bill Christie, an anonymous referee, Christopher W. Anderson, George Bittlingmayer, Hsuan-Chi Chen, and seminar participants at the 2008 Financial Management Annual Meeting for their valuable comments. We also wish to thank Sagient Research, the Breetwork Fellowship, and the Dean Witter Fund for their generous support. All errors remain the sole responsibility of the authors.


We investigate the market structure and the pricing by placement agents of private investments in public equities (PIPEs). Our findings indicate that more reputable agents are associated with larger offers and with firms possessing lower risk. Agent reputation is positively associated with lower discounts and an enhanced post-PIPE trading environment. Issuers pay a higher dollar fee for these benefits, although more reputable agents charge a lower percentage fee. The evidence suggests that it is the quality of the issuing firm, and the pricing and reputational concern of the placement agent, that drives the equilibrium in the PIPE market.