An Empirical Examination of Investment Banking Reputation Measures

This paper empirically examines the explanatory power of investment banking reputation measures. One of these measures, a nineteen-tier indicator of underwriter reputation, is determined by the relative position of the underwriter's name within the tombstone announcements of security offerings. An alternative measure assigns four ranks according to the investment banking bracket of the underwriter. This “bracket” measure is considerably easier to create than the “tombstone” measure. We employ both measures in identical initial public offering empirical models and assess their relative performance. In all of the models tested, the tombstone measure appears to be superior. Moreover, we find that, unlike the bracket measure, the tombstone reputation indicator significantly explains the initial returns to initial public offerings even when a measure of ex post uncertainty is included in the model.