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Is There A Signaling Effect Of Underwriter Reputation?

Author

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  • Abe Helou
  • Gonyung Park

Abstract

In this article we examine the effect of underwriter reputation on the abnormal return due to an announcement to issue seasoned new equity. After controlling for other factors that relate asymmetric information to abnormal returns, underwriter reputation still significantly reduces the magnitude of the negative announcement effect. We also develop a procedure to extract a signaling component from the measure of underwriter reputation. We show that the signaling component of underwriter reputation positively and significantly affects abnormal returns. This result supports the notion that issuing firms use underwriter reputation as an effective instrument to signal that their stocks are not overvalued. JEL classification: D82, G24, G30

Suggested Citation

  • Abe Helou & Gonyung Park, 2001. "Is There A Signaling Effect Of Underwriter Reputation?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(1), pages 27-43, March.
    • Handle: RePEc:bla:jfnres:v:24:y:2001:i:1:p:27-43
    DOI: 10.1111/j.1475-6803.2001.tb00816.x
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    Cited by:

    1. Will Drover & Matthew S. Wood & Andrew Zacharakis, 2017. "Attributes of Angel and Crowdfunded Investments as Determinants of VC Screening Decisions," Entrepreneurship Theory and Practice, , vol. 41(3), pages 323-347, May.
    2. Arthurs, Jonathan D. & Busenitz, Lowell W. & Hoskisson, Robert E. & Johnson, Richard A., 2009. "Signaling and initial public offerings: The use and impact of the lockup period," Journal of Business Venturing, Elsevier, vol. 24(4), pages 360-372, July.
    3. Daniels, Kenneth N. & Vijayakumar, Jayaraman, 2007. "Does underwriter reputation matter in the municipal bond market?," Journal of Economics and Business, Elsevier, vol. 59(6), pages 500-519.
    4. repec:ire:issued:v:21:n:03:2018:p:367-388 is not listed on IDEAS
    5. Su, Tong & Shi, Yuning & Lin, Boqiang, 2023. "Label or lever? The role of reputable underwriters in Chinese green bond financing," Finance Research Letters, Elsevier, vol. 53(C).
    6. Carey, Peter & Fang, Victor & Zhang, Hong Feng, 2016. "The role of optimistic news stories in IPO pricing," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 41(C), pages 16-29.
    7. Anup Agrawal & Tommy Cooper, 2010. "Accounting Scandals in IPO Firms: Do Underwriters and VCs Help?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(4), pages 1117-1181, December.
    8. Philip Brown & Andrew Ferguson & Kate Stone, 2008. "Share Purchase Plans in Australia: Issuer Characteristics and Valuation Implications," Australian Journal of Management, Australian School of Business, vol. 33(2), pages 307-332, December.
    9. Lucia Gibilaro & Gianluca Mattarocci, 2018. "Financing Decisions of REITs and the Switching Effect," International Real Estate Review, Global Social Science Institute, vol. 21(3), pages 367-396.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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