Underwriting Syndicate Structure and Lead Manager Reputation: An Empirical Study on European Stock Markets

Using a comprehensive sample of 1542 initial public offerings (IPOs) sold on German, French and British stock markets, we investigate the structure of underwriting syndicates in the presence of reputable lead managers. We consider two aspects of syndicate structure: the number of syndicate members and the ratio of the total number of members to the number of lead managers. First, we find that the lead manager is often the sole bank to perform the underwriting; the lead manager delegates part of the tasks of distributing shares to other participants in only 41% of the IPOs. An important reason is that a large fraction of the IPOs in Europe are relatively small. Second, we show that the extent of task delegation increases with lead manager reputation because it leads to more co-managers and other managers participating in the syndicate. However, this effect only occurs for larger issuances; in general, smaller IPOs are left to smaller and less reputable underwriters, some of whom nevertheless perform a large number of small deals. Overall, our findings are consistent with the view that lead manager reputation generates market segmentation between larger and smaller issuances.