1990
DOI: 10.1111/j.1540-6261.1990.tb02426.x
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Initial Public Offerings and Underwriter Reputation

Abstract: This paper examined the returns earned by subscribing to initial public offerings of equity (IPOs). Rock (1986) suggests that IPO returns are required by uninformed investors as compensation for the risk of trading against superior information. We show that IPOs with more informed investor capital require higher returns. The marketing underwriter's reputation reveals the expected level of "informed" activity. Prestigious underwriters are associated with lower risk offerings. With less risk there is less incent… Show more

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Cited by 1,860 publications
(808 citation statements)
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References 26 publications
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“…Lower risk offering and, consequently, lower initial returns are expected for IPOs managed by prestigious underwriters (Carter and Manaster, 1990;Booth and Chua, 1996;Johnson and Miller, 1988;Kim and Ritter, 1999).…”
Section: Hypotheses Developmentmentioning
confidence: 99%
“…Lower risk offering and, consequently, lower initial returns are expected for IPOs managed by prestigious underwriters (Carter and Manaster, 1990;Booth and Chua, 1996;Johnson and Miller, 1988;Kim and Ritter, 1999).…”
Section: Hypotheses Developmentmentioning
confidence: 99%
“…Corwin and Schultz (2005) and Hanley (1993) suggest that underwriters incorporate information about investor demand into the offer price. Carter and Manaster (1990) and Corwin and Schultz (2005) show that IPOs underwritten by prestigious underwriters are less underpriced. Dunbar (2000) and Chen and Ritter (2000) point out that underwriters provide unique investment analysis reports after issuance.…”
Section: Underwriting Services and Underwriter Compensationmentioning
confidence: 96%
“…We use the data supplied on Jay Ritter's homepage. See Carter and Manaster (1990) or Carter, Dark, and Singh (1998) for further discussions on the ranking process.…”
Section: Examination Of the Impact Of Forecast Effort On Analysts' Camentioning
confidence: 99%
“…a model that includes our general effort measure has at least the same explanatory power as a model that instead includes a firm-specific effort measure. 22 Carter and Manaster's (1990) ranking is based on the hierarchy of an underwriter's position in stock offering 'tombstone' announcements, and it assigns a rank between 0 (low prestige) and 9 (high prestige) to each underwriter. Loughran and Ritter (2004) update the rankings in regular intervals and assign values between 1.1 and 9.1 to the brokerage houses (the attached 0.1 should help to distinguish between the rankings).…”
Section: Examination Of the Impact Of Forecast Effort On Analysts' Camentioning
confidence: 99%