Investment Banker Reputation and the Performance of Seasoned Equity Issuers

Robyn M. McLaughlin · Assem M. Safieddine · Gopala K. Vasudevan

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Corporate Finance and Governance Financial Markets and Investment Strategies Credit Risk and Financial Regulations

Abstract

We study the relation between investment banker reputation and announcement-period returns and between banker reputation and three-year post-issue holding-period returns for firms that conducted seasoned equity offerings (SEOs) between 1980 and 1994. We find a positive relation overall between investment banker reputation and announcement-period returns but no significant relation between investment banker reputation and long-run post-issue stock price performance. We also design an empirical model to predict the prestige of the issuer’s underwriter. We find that announcement-period returns are significantly related to banker prestige for issuers with high levels of information asymmetry that go against type to use a high-prestige investment banker.

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References

1984Corporate financing and investment decisions when firms have information that investors do not have 1996Agency costs of free cash flow, corporate finance, and takeovers 1995The New Issues Puzzle 1985Dividend Policy under Asymmetric Information 1997Measuring Mutual Fund Performance with Characteristic‐Based Benchmarks 1997Detecting long-run abnormal stock returns: The empirical power and specification of test statistics 1986Investment banking, reputation, and the underpricing of initial public offerings 1990Initial Public Offerings and Underwriter Reputation

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2005Auditor's Reputation and Equity Offerings: The Case of Arthur Andersen 2000Marketing of Stocks by Brokerage Firms: The Role of Financial Analysts 2015Credibility and Multiple SEOs: What Happens When Firms Return to the Capital Market?2011Accelerated Equity Offers and Firm Quality

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