Do Underwriters Matter? The Impact of the Near Failure of an Equity Underwriter
49 Pages Posted: 20 Jul 2010 Last revised: 8 Feb 2011
There are 2 versions of this paper
Do Underwriters Matter? The Impact of the Near Loss of an Equity Underwriter
Date Written: February 1, 2011
Abstract
The financial crisis provides a natural experiment for testing theoretical predictions of the equity underwriter’s role following an initial public offering. Clients of Bear Stearns, Lehman Brothers, Merrill Lynch, and Wachovia saw their stock prices fall almost 5 percent, on average, on the day it appeared that these institutions might collapse. Representing a loss in equity value of almost $3 billion, the decline was more than 1 percent lower than the abnormal return of other newly public companies. The price impact was worse for companies with fewer monitors, suggesting that underwriters play an important role in monitoring newly public companies. There is no evidence that the abnormal price decrease was related to the role of the underwriter as market maker, lender or counterparty to investors.
Keywords: investment banking, financial crisis, IPOs, underwriting, event study
JEL Classification: G2, G24, G3, G30, G14
Suggested Citation: Suggested Citation
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