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Determinants of Underwriter Participation in Initial Public Offerings of Common Stock: An Empirical Study

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  • Sung C. Bae
  • Daniel P. Klein
  • John W. Bowyer

Abstract

This paper examines an optimal underwriter participation model and develops testable hypotheses regarding the influence of certain factors on the degree of underwriter participation in initial public offerings (IPOs) of common stock. The issue of underwriter participation is important primarily due to the tradeoff between foregone underwriter compensation and underwriting risk reduction. The results of this paper indicate that factors related to the issue, issuing firm, underwriter, and IPO market conditions all are important determinants of the participation decision. Interestingly, the results also show that the importance of these factors is not consistent across underwriter prestige groups. In particular, factors external to underwriters (e.g., the issuing firm and market characteristics) are more important for explaining nonprestigious underwriter participation, while factors related to underwriters themselves play a more important role for explaining prestigious underwriter participation.

Suggested Citation

  • Sung C. Bae & Daniel P. Klein & John W. Bowyer, 1999. "Determinants of Underwriter Participation in Initial Public Offerings of Common Stock: An Empirical Study," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(5‐6), pages 595-619, June.
    • Handle: RePEc:bla:jbfnac:v:26:y:1999:i:5-6:p:595-619
    DOI: 10.1111/1468-5957.00268
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    Cited by:

    1. Monica C. Higgins & Ranjay Gulati, 2003. "Getting Off to a Good Start: The Effects of Upper Echelon Affiliations on Underwriter Prestige," Organization Science, INFORMS, vol. 14(3), pages 244-263, June.
    2. Catherine M. Daily & S. Trevis Certo & Dan R. Dalton & Rungpen Roengpitya, 2003. "IPO Underpricing: A Meta–Analysis and Research Synthesis," Entrepreneurship Theory and Practice, , vol. 27(3), pages 271-295, July.

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