The Effect of Underwriter Reputation on Long-Term IPO Performance - Does Firm Quality Explain the Positive Relationship?

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dc.contributor Aalto University en
dc.contributor Aalto-yliopisto fi
dc.contributor.advisor Nyberg, Peter
dc.contributor.author Pöyhönen, Johanna
dc.date.accessioned 2018-06-29T10:09:31Z
dc.date.available 2018-06-29T10:09:31Z
dc.date.issued 2018
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/32524
dc.description.abstract The purpose of this paper is to study the relationship between underwriter reputation and long-term IPO performance in light of firm quality. My main objective is to test whether the positive relationship documented in previous studies can be explained by the quality of firms going public. The research question stems from a common assumption in the literature: High-quality underwriters possess above-average skills to screen IPO candidates. The sample consists of 8,000 firms that went public in the United States between 1980 and 2013. I use three methodologies in my analysis that are buy-and-hold-abnormal returns, cross-sectional regressions and calendar-time portfolio regressions. The quality minus junk (QMJ) factor by Asness, Frazzini and Pedersen (2013) is included in calculating factor-adjusted returns in the regression analyses to answer the research question. Post-issue performance is analyzed over a three-year period and updated Carter and Manaster (1990) underwriter reputation measures are used as estimates of underwriter quality. I find that IPOs underwritten by high-prestige underwriters outperform IPOs underwritten by low-prestige underwriters when the QMJ factor is not included in the analysis. However, the results of the regression analyses change when the QMJ factor is included: The positive relationship between underwriter reputation and long-term IPO performance disappears in the cross-sectional regression analysis and the relationship is weakened in the calendar-time portfolio analysis. This suggests that the effect of underwriter reputation is partly the result of an indirect effect through firm quality. This thesis complements the existing literature on the effect of underwriter quality on IPO performance. I provide further evidence of the positive relationship between underwriter reputation and long-run IPO returns. More importantly, I show that this relationship can be partly explained by the quality of firms going public. In practice, high-prestige underwriters underwrite issues that are, on average, of higher quality than the issues underwritten by low-prestige underwriters. en
dc.format.extent 61
dc.language.iso en en
dc.title The Effect of Underwriter Reputation on Long-Term IPO Performance - Does Firm Quality Explain the Positive Relationship? en
dc.title Investointipankkien maineen vaikutus pitkän aikavälin listautumistuottoihin - Selittääkö listautuvien yritysten laatu positiivisen yhteyden? fi
dc.type G2 Pro gradu, diplomityö fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Business en
dc.contributor.department Rahoituksen laitos fi
dc.subject.keyword initial public offerings en
dc.subject.keyword post-issue performance en
dc.subject.keyword long-run performance en
dc.subject.keyword underwriter reputation en
dc.subject.keyword firm quality en
dc.identifier.urn URN:NBN:fi:aalto-201806293934
dc.type.ontasot Master's thesis en
dc.type.ontasot Maisterin opinnäyte fi
dc.programme Finance en
dc.subject.helecon rahoitus fi
dc.subject.helecon listautuminen fi
dc.subject.helecon pörssiyhtiöt fi
dc.subject.helecon tuotto fi
dc.subject.helecon investointipankit fi
dc.subject.helecon maine fi
dc.ethesisid 17216
dc.location P1 I fi


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