Why Do Firms Switch Underwriters?

Krigman, Laurie; Womack, Kent L.

doi:10.2139/ssrn.242041

Cited by 167 publications

(130 citation statements)

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“…The weight of the expertise-related aspects is in line with survey results for US IPOs (Brau and Fawcett 2006a) and with survey results for firms that completed an IPO and then switched underwriters in follow-on equity offerings (Krigman et al 2001).…”

Section: Lead Manager Choice and Syndicate Formationsupporting

confidence: 70%

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CEOs and CFOs on IPOs: The Process and Success of Going Public

2016

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General rightsIt is not permitted to download or to forward/distribute the text or part of it without the consent of the author(s) and/or copyright holder(s), other than for strictly personal, individual use, unless the work is under an open content license (like Creative Commons). Disclaimer/Complaints regulationsIf you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library: http://uba.uva.nl/en/contact, or a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible. Abstract We conducted 46 interviews with CEOs and CFOs who were closely involved in an initial public offering (IPO) in the Netherlands. Among other things, we find that pre-existing relationships are a primary consideration in the selection of the lead manager and other syndicate members. Pre-marketing feedback figures prominently throughout the pricing process. The width of the price range of book-built IPOs is especially driven by valuation uncertainty. There is evidence of strategic underpricing in anticipation of subsequent equity issues and because of management's interest in satisfying new shareholders. Many interviewees believe that the lead manager's business interests have had a strong influence on the allocation of shares. Managerial perceptions of IPO success are largely driven by how well the firm fared in terms of stock price performance, changes in media attention and visibility, and changes related to the retention and recruitment of staff.We are indebted to the many CEOs and CFOs who participated in our survey-without their donation of valuable time this paper could not have been accomplished. We thank Roeland Haanen, Geert-Jan van Logtestijn and Coen Mensink for their constructive comments, and to Jeffrey Duyvesteijn, Robartus Krol and Lars van Dort for their skillful research assistance.

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Section: Lead Manager Choice and Syndicate Formationsupporting

confidence: 70%

“…Analyst coverage was never explicitly mentioned as a primary concern. This contrasts with US practice (Krigman et al 2001;Brau and Fawcett 2006a;Francis et al 2010), and may explain why "there is relatively little research using European data examining the role of analysts in the IPO process" (Ritter 2003b).…”

Section: Lead Manager Choice and Syndicate Formationmentioning

confidence: 99%

CEOs and CFOs on IPOs: The Process and Success of Going Public

2016

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“…Dunbar (2000) presents evidence that underwriters in 1984-1994 subsequently increased their IPO market share if they had an analyst who was highly ranked in the Institutional Investor (II) annual survey. Clarke, Dunbar, and Kahle (2003, Table 2) report that investment banks gaining an II all-star analyst subsequently boosted their market share of IPOs in the analyst's industry; the changes were greater in 1995-1999than in 1988-1994. The Krigman, Shaw, and Womack (2001 survey of issuing firms finds that one of the most important reasons to switch underwriters in a seasoned offering is to seek additional and influential analyst coverage from the new banker.…”

Section: B the Analyst Lust Explanation Of Underpricingmentioning

confidence: 99%

Why Has IPO Underpricing Changed Over Time?

2002

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In the 1980s, the average first-day return on initial public offerings (IPOs) was 7%. The average first-day return doubled to almost 15% during 1990-1998, before What explains the severe underpricing of initial public offerings in 1999-2000, when the average first-day return of 65% exceeded any level previously seen before? In this article, we address this and the related question of why IPO underpricing doubled from 7% during 1980-1989 to almost 15% during 1990-1998 before reverting to 12% during the post-bubble period of 2001-2003. Our goal is to explain low-frequency movements in underpricing (or first-day returns) that occur less often than hot and cold issue markets.We examine three hypotheses for the change in underpricing: 1) the changing risk composition hypothesis, 2) the realignment of incentives hypothesis, and 3) a new hypothesis, the changing issuer objective function hypothesis. The changing issuer objective function hypothesis has two components, the spinning hypothesis and the analyst lust hypothesis.The changing risk composition hypothesis, introduced by Ritter (1984), assumes that riskier IPOs will be underpriced by more than less-risky IPOs. This prediction follows from models where underpricing arises as an equilibrium condition to induce investors to participate in the IPO market. If the proportion of IPOs that represent risky stocks increases, there should be greater average underpricing. Risk can reflect either technological or valuation uncertainty. Although there have been some changes in the characteristics of firms going public, these changes are found to be too minor to explain much of the variation in underpricing over time if there is a stationary risk-return relation.The realignment of incentives and the changing issuer objective function hypotheses bothWe thank Hsuan

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“…Academic research has pointed out the importance of analyst coverage over the years. Krigman, Shaw, and Womack (2001) suggested that the most important motivation for firms to switch underwriters between an IPO and a seasoned equity offering is obtaining additional and influential analyst coverage. Loughran and Ritter (2004) and Cliff and Denis (2004) argued that the underpricing of newly public firms is positively related to analyst coverage.…”

Section: Can Analyst Coverage Reduce the Ipo Underperformance Phenomementioning

confidence: 99%