What Is Special about the Roles of Underwriter Reputation and Market Activities in Initial Public Offerings?
This article examines the interaction between underwriter reputation and market activities during the initial public offering (IPO) process. Underwriter reputation is a significant determinant of premarket underwriter activities, weakly related to aftermarket price stabilization activities, and unrelated to issuer returns. Premarket underwriter activities are a significant determinant of issue-date returns and aftermarket underwriter activities but are unrelated to longer-run returns. Aftermarket underwriter activities are significantly related to longer-run returns. The results suggest that simultaneous consideration of underwriter reputation and market activities is important if proper inferences about the IPO process and investor returns are to be drawn. Copyright 2002 by the University of Chicago.