Underwriter reputation and IPO issuer alignment 1981–2005

We examine the long-term performance and characteristics of firms that went public from 1981 to 2005. We find that long-run returns declined and the proportion of failed and failing firms increased with underwriter reputation. The IPOs marketed by the more reputable underwriters were more likely to fail or be failing in the post-1980s period, but were still better than those of less reputable counterparts. The characteristics of the firms marketed by the more reputable underwriters did not appear to change substantially from decade to decade. We conclude that external market forces rather than conscious changes by underwriters caused the shift in the relation between failure rates and underwriter reputation from the 1980s to the subsequent period. We also find the “flip” in relationship between underwriter reputation and initial IPO return identified in the literature disappears after controlling for additional factors.