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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26721
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| Title: | Conflicts of interest and efficient contracting in IPOs |
| Authors: | Ljungqvist, Alexander |
| Keywords: | Initial public offerings
Underpricing
Intermediation
Integrated securities houses
Underwriting contracts |
| Issue Date: | 20-Sep-2002 |
| Series/Report no.: | S-CG-02-07 |
| Abstract: | We study the role of underwriter compensation in mitigating conflicts of
interest between companies going public and their investment bankers.
Making the bank’s compensation more sensitive to the
issuer’s valuation should reduce agency conflicts and thus
underpricing. Consistent with this prediction, we show that contracting
on higher commissions in U.K. IPOs leads to significantly lower
underpricing: a one percentage point increase in the commission rate
reduces the initial return by 11 percentage points, after controlling
for other influences on underpricing. Moreover, we present evidence
consistent with issuers choosing commission rates optimally. Overall,
our results indicate that issuers and banks contract efficiently in U.K. IPOs. |
| URI: | http://hdl.handle.net/2451/26721 |
| Appears in Collections: | Corporate Governance
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