We are thankful to colleagues at Concordia University, the University of St. Thomas, the University of Mannheim, UCLA, Rutgers University, and Washington State University for helpful comments. Sergey Barabanov gratefully acknowledges support from the Opus College of Business, University of St. Thomas. Thomas Walker gratefully acknowledges the financial assistance provided by the Canadian Social Sciences and Humanities Research Council (SSHRC) and Germany's Alexander von Humboldt Foundation.
UNDERWRITERS AND THE BROKEN CHINESE WALL: INSTITUTIONAL HOLDINGS AND POST-IPO SECURITIES LITIGATION
Version of Record online: 10 DEC 2013
© 2013 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 36, Issue 4, pages 543–578, Winter 2013
How to Cite
Barabanov, S. S., Ozocak, O., Pukthuanthong, K. and Walker, T. J. (2013), UNDERWRITERS AND THE BROKEN CHINESE WALL: INSTITUTIONAL HOLDINGS AND POST-IPO SECURITIES LITIGATION. Journal of Financial Research, 36: 543–578. doi: 10.1111/jfir.12023
- Issue online: 10 DEC 2013
- Version of Record online: 10 DEC 2013
- Opus College of Business, University of St. Thomas
- Canadian Social Sciences and Humanities Research Council (SSHRC)
- Germany's Alexander von Humboldt Foundation
We examine whether underwriters have an information advantage over other institutional investors in new public companies. Focusing on firms targeted by IPO-related class action litigation and a matched sample of nonsued firms, we find evidence suggesting that lead underwriters retain an information advantage in the firms they take public and that they capitalize on this information by closing out or reducing their holdings in sued firms prior to the eventual litigation date. An examination of analyst opinions suggests that analysts affiliated with lead underwriters are reluctant to reduce their earnings forecasts or downgrade sued firms before the litigation date.