The reputation of underwriters: A test of the bonding hypothesis |
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Authors: | Gilberto Loureiro |
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Institution: | 1. University of Florida, Warrington College of Business Administration, Bryan Hall, Gainesville, FL 32611, U.S.A.;2. Western University, Ivey School of Business, 1255 Western Road, Room 3353, London, Ontario N6G 0N1, Canada;1. Department of Finance, The University of Tennessee, United States;2. University of Minho, School of Economics and Management, Portugal;3. Mississippi State University, United States |
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Abstract: | In the spirit of the Bonding Hypothesis proposed by Stulz (1999) and Coffee (1999, 2002), I find that foreign firms that cross-list in the U.S. and undertake IPOs are more likely to employ reputable underwriters if the firms come from countries with poor shareholder protection. The additional monitoring provided by reputable underwriters may help overcome the skepticism of U.S. investors, and partially explains the higher valuation these firms obtain after the offering. There is, however, a price to pay for this bonding benefit. I find that issuers from countries with weaker shareholder protection tend to be more underpriced if they are sponsored by prestigious underwriters. |
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