The Role of IPO Underwriting Syndicates: Pricing, Information Production, and Underwriter Competition

Abstract

We examine syndicates for 1,638 IPOs from January 1997 through June 2002. We find strong evidence of information production by syndicate members. Offer prices are more likely to be revised in response to information when the syndicate has more underwriters and especially more co-managers. More co-managers also result in more analyst coverage and additional market makers following the IPO. Relationships between underwriters are critical in determining the composition of syndicates, perhaps because they mitigate free-riding and moral hazard problems. While there appear to be benefits to larger syndicates, we discuss several factors that may limit syndicate size. Copyright 2005 by The American Finance Association.

SPACs: post-merger survival

“…Corwin and Schultz (2005) suggest that issuers benefit from including more underwriters in syndicate. At first underwriting of SPAC securities was a niche of small and middle size investment banks as EarlyBirdCapital and Morgan…”

“…This is in agreement with Hensler et al (1997) who report that the level of insider ownership is positively related to probability of survival and with Chancharat et al (2012) who report that the quality and independence of the board increases survival likelihood. Corwin and Schultz (2005) also document that issuers benefit from including more underwriters in syndicate.…”

Orphan Versus Non-Orphan IPOs: The Difference Analyst Coverage Makes

“…Cliff and Denis (2004) Ownership structure also affects analyst coverage. Bhushan (1989) and O'Brien and Bhushan (1990) find that the likelihood of analyst coverage is associated with the interests of institutional investors in the firm. The authors conclude that there is a positive relationship between institutional investor ownership and analyst coverage.…”

“…Bradley et al (2003) showed that the number of managing underwriters in a syndicate is a good indicator of the coverage enjoyed by newly listed firms at the time of their IPOs. Corwin and Schultz (2005) examined the syndicates of 1638 IPOs and found evidence that each additional co-manager results in 0.8 additional analyst recommendations within 3 months of the IPO. Bradley et al (2008b), however, did not find incremental coverage to be related to improved long-run performance.…”

“…This change takes place not because of the reputation of the underwriter but for the coverage of analysts whose buy recommendation are often more favourable than those of their predecessors. Corwin and Schultz (2005) examine the underwriting syndicates of 1638 IPOs between 1997 and 2002 in the United States. They emphasise the importance of co-managers, stating that the addition of a co-manager to the syndicate increases analyst coverage within the 3 months after the IPO.…”