Co-managers, Information, and the Secondary Market Liquidity of Initial Public Offerings


  • We are very grateful to an anonymous referee, Bill Christie (Editor), Mike Cliff, Ozzie Ince, Greg Kadlec, Art Keown, Laurie Krigman, Raman Kumar, Marc Lipson, Alexei Ovtchinnikov, Jay Ritter, Dilip Shome, Rick Sias, and seminar participants at the 2007 FMA Annual Meeting and Virginia Tech for their helpful comments and suggestions. We would also like to thank Mike Cliff for providing the broker identification dataset and Jay Ritter for providing the underwriter rankings. All errors and omissions are the sole responsibility of the authors.


We provide evidence that co-managers improve initial public offering (IPO) liquidity through the “information” services they provide. Based on a sample of IPOs completed from January 1993 to December 2005, we find that a high number of co-managers in the syndicate are associated with a lower spread, lower adverse selection costs, and a lower probability of informed trading. Moreover, increases in the offer price revision, in co-managers’ underwriting rank, and in the number of analyst recommendations are all associated with the improvement in liquidity. This evidence is consistent with the hypotheses that co-managers’ premarket and postmarket services mitigate information risk in the aftermarket.