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The Underwriter Persistence Phenomenon
Author(s) -
HOBERG GERARD
Publication year - 2007
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2007.01233.x
Subject(s) - underwriting , initial public offering , phenomenon , business , persistence (discontinuity) , service (business) , information asymmetry , ask price , actuarial science , econometrics , economics , accounting , finance , marketing , engineering , physics , geotechnical engineering , quantum mechanics
This study presents new evidence that initial IPO returns have persistent underwriter‐specific components. These components cannot be explained by existing measures of underwriter quality, underwriter service, or controls for several known predictors of initial IPO returns. Tests that trace the roots of persistence most broadly support theories of asymmetric information among underwriters. I present such a model, and consistent with its predictions, I find that high underpricing underwriters (1) are responsible for a majority of the partial adjustment phenomenon, (2) make more informed analyst revisions, (3) experience superior market share growth, and (4) are more likely to serve an institutional clientele.