Underwriter syndication and corporate governance |
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Authors: | Hoje Jo Yongtae Kim Dongsoo Shin |
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Institution: | (1) Department of Finance, Leavey School of Business, Santa Clara University, 500 El Camino Real, Santa Clara, CA 95053-0388, USA;(2) Department of Accounting, Leavey School of Business, Santa Clara University, 500 El Camino Real, Santa Clara, CA 95053-0388, USA;(3) Department of Economics, Leavey School of Business, Santa Clara University, Santa Clara, CA 95053, USA |
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Abstract: | The main purpose of this paper is to examine underwriters’ response to issuers’ ineffective corporate governance. Given the
growing importance of corporate governance for the success of equity offerings, we examine this response using a sample of
seasoned equity offerings (SEOs). Previous studies suggest various rationales behind underwriter syndication, such as risk
sharing, market-making, information production, certification, and monitoring. We offer an information-asymmetry-reduction
hypothesis for the persistence of underwriter syndication. We argue that less effective corporate governance decreases information
credibility, which, in turn, increases information asymmetry, leading underwriters to increase syndicate size to mitigate
subsequent agency problems. Consistent with this prediction, we find that the size of the underwriter syndication is inversely
related to proxies that measure the effectiveness of corporate governance. Results remain robust even after controlling for
other confounding factors. |
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Keywords: | |
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