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Underwriter Quality and Long-Run IPO Performance


  • We thank Bill Christie (Editor), an anonymous referee, Kee-Hong Bae, Douglas Cumming, Steve Foerster, George Georgopoulos, Jean Helwege, David Hirshleifer, Mark Kamstra, Srinivasan Krishnamurthy, Tim Loughran, Michele Meoli, Emmanuel Morales-Camargo, Debarshi Nandy, Jay Ritter, Alexander Vedrashko, and seminar participants at the 2009 Eastern Finance Association meeting, the 2009 Financial Management Association meeting, the 2009 Northern Finance Association meeting, and York University for very helpful comments. Ming Dong gratefully acknowledges the financial support from the Social Sciences and Humanities Research Council of Canada.


We analyze the relationship between the quality of underwriters and the long-run performance of initial public offerings (IPOs) in light of underwriter marketing, certification and screening, and information production. We find that higher underwriter quality (measured by the number of managing underwriters, underwriter reputation, and absolute price adjustment) predicts better long-run performance, even when returns are value weighted. We compare underwriter quality measures and find that the effects of the number of managing underwriters and underwriter reputation are mutually complementary and are especially strong among IPOs with high uncertainty, while absolute price adjustment, which is more likely to be associated with information production than marketing or certification/screening, loses significance. Our findings are consistent with the marketing and certification and screening roles of investment banks but lend little support for the information production role of underwriters.