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Effects of IPO mispricing on the risk and reputational capital of commercial banks

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  • L.Paige Fields
  • Donald R. Fraser

Abstract

We provide direct evidence regarding the risk and reputational capital implications of commercial bank securities underwriting activities. Using a large sample of commercial bank underwritten initial public offerings (IPOs) and comparisons with investment bank underwritten issues, we find that (1) commercial banks are no more likely to misprice IPOs than are traditional investment banks, and (2) the market reaction to mispriced IPOs is no greater for commercial banks than for traditional investment banks. Our evidence, thus, is consistent with the policy implications of other research justifying repeal of the Glass–Steagall Act. Specifically, we find no evidence that bank shareholders or the public are exposed to greater risk when banks are allowed to underwriter securities.

Suggested Citation

  • L.Paige Fields & Donald R. Fraser, 2004. "Effects of IPO mispricing on the risk and reputational capital of commercial banks," Review of Financial Economics, John Wiley & Sons, vol. 13(1-2), pages 65-77.
    • Handle: RePEc:wly:revfec:v:13:y:2004:i:1-2:p:65-77
    DOI: 10.1016/j.rfe.2003.09.005
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    References listed on IDEAS

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