The Certification Role of Large Customers in the New Issues Market |
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| Authors: | William C Johnson Jun-Koo Kang Sangho Yi |
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| Institution: | 1. William C. Johnson is an Assistant Professor at the University of New Hampshire, Durham, NH.;2. Jun-Koo Kang is a Distinguished Professor of Finance at Nanyang Technological University, Singapore.;3. Sangho Yi is an Associate Professor at Sogang University, Seoul, Korea. |
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| Abstract: | This paper examines the certification role of large customers and finds that IPO firms that have product market relationships with large customers experience higher valuation and better long-term performance compared to IPOs without such relationships. This higher valuation is more pronounced when product market relationships are able to alleviate IPO uncertainties, when the businesses of large customers and their IPO suppliers are closely related in downstream markets, and when large customers have stronger certifying abilities. Finally, we find that large customers realize significant positive abnormal returns around their suppliers’ preliminary prospectus filing dates, suggesting that some of the benefits from product market relationships accrue to large customers. |
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