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What order flow reveals about the role of the underwriter in IPO aftermarkets


  • Michael Aitken
  • Frederick H. Harris
  • Thomas H. McInish
  • Kathryn Wong


Purpose - The purpose of this paper is to investigate the cross-sectional determinants of the role of the underwriter in aftermarket price discovery. Design/methodology/approach - The paper estimates Gonzalo-Granger common factor weights across underwriter and non-underwriter execution channels in the IPO aftermarket and investigates the cross-sectional determinants of these CFWs. Findings - The first novel result is that verifiable facts are not a substitute for, but a complement to, underwriter certification and advice. Specifically, the underwriter's contribution to price discovery increases with the number of supplier and customer contracts reported in the prospectus. Second, the underwriter's role in price discovery declines when the IPO is first in a new technology or product space. These findings indicate that the verification process, not Research limitations/implications - Research design is applicable to IPOs in the USA and elsewhere. Originality/value - Previous research examining IPO aftermarket trading has been largely limited to the first day of trading. The paper contributes to the small but growing literature that examines the role of the underwriter beyond this period.

Suggested Citation

  • Michael Aitken & Frederick H. Harris & Thomas H. McInish & Kathryn Wong, 2009. "What order flow reveals about the role of the underwriter in IPO aftermarkets," International Journal of Managerial Finance, Emerald Group Publishing, vol. 5(1), pages 16-49, February.
  • Handle: RePEc:eme:ijmfpp:v:5:y:2009:i:1:p:16-49

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    Cited by:

    1. Chatalova, Natalia & How, Janice C.Y. & Verhoeven, Peter, 2016. "Analyst coverage and IPO management forecasts," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 263-277.
    2. Arnab Bhattacharya & Binay Bhushan Chakrabarti, 2014. "An Examination of Adverse Selection Risk in Indian IPO After-Markets using High Frequency Data," International Journal of Economic Sciences, Prague University of Economics and Business, vol. 2014(3), pages 01-49.

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    Underwriting; Venture capital;


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