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

Abstract

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.

Monitoring via staging: Evidence from Private investments in public equity

“…Most PIPE issuers are small, young, and risky public companies (see Dai, 2007;Brophy et al, 2009;Chaplinsky and Haushalter, 2010;Chen et al, 2010b;Dai et al, 2010). PIPE investors therefore need to understand how to mitigate the agency and information problems that typically accompany such investments.…”

The white squire defense: Evidence from private investments in public equity

“…These filters result in a final sample of 1,634 PIPE issuances. Dai et al (2010) that the PIPE market has been growing in recent years.…”

Who Benefits from the Uniformity of Contingent Fee Rates?

“…However, since both the value of cases and the qualification of lawyers are heterogeneous, uniform CF rates do not yield uniform effective fees (cf. Dai et al, 2010). If better lawyers handle more lucrative cases, uniform CF rates actually entail systematic differentiation in attorneys' fees (cf.…”

“…Chen and Ritter (2000) argue that the high, uniform commissions paid to underwriters of initial public offerings in the United States are supra-competitive and examine several explanations for this fact (which differ from ours). The selection of investment banks and the fees they charged were also empirically studied by Dai and her co-authors (Dai et al, 2010).…”