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Bought deals: The value of underwriter certification in seasoned equity offerings

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  • Ari Pandes, J.
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    Abstract

    The bought deal is the predominant method of underwriting SEOs in Canada. Offer prices are set and underwriters commit to purchase offerings several days earlier for bought deals than for firm commitment issues, implying stronger underwriter certification for bought deal issues. Consistent with the certification hypothesis, this study finds a significantly smaller negative stock price reaction around the announcement of bought deals compared to firm commitment issues. Bought deals are further shown to have smaller offer price discounts and smaller underwriting fees, implying superior pricing and thus, higher quality offerings. These findings suggest that investment banks' underwriting method of choice is informative of issue quality.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 34 (2010)
    Issue (Month): 7 (July)
    Pages: 1576-1589

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    Handle: RePEc:eee:jbfina:v:34:y:2010:i:7:p:1576-1589

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: SEOs Bought deal Information asymmetry Underwriter certification;

    References

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    Cited by:
    1. Jeon, Jin Q. & Ligon, James A., 2011. "The role of co-managers in reducing flotation costs: Evidence from seasoned equity offerings," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1041-1056, May.
    2. Kryzanowski, Lawrence & Lazrak, Skander & Rakita, Ian, 2010. "Behavior of liquidity and returns around Canadian seasoned equity offerings," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2954-2967, December.
    3. Lee, Chin-Chong & Poon, Wai-Ching & Sinnakkannu, Jothee, 2014. "Why are rights offers in Hong Kong so different?," Pacific-Basin Finance Journal, Elsevier, vol. 26(C), pages 176-197.

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