Revisiting The Certifying Role Of Financial Intermediaries On IPOs

Abstract

This paper re-examines the role of commercial banks, investment banks, and venture capitalists in monitoring and certifying the value of the firms that went public in the 2000s. We find that investment banks that have better reputations are associated with larger underpricing for venture-capital-backed IPOs, but not for non-venture-capital-backed IPOs. The partial adjustment phenomenon observed in Carter et al. (2001) exists only for venture-capital-backed IPOs. The presence of venture capital is inversely related to IPO underpricing only when venture capitalists certify small firms. We do not find that the presence of bank debt reduces IPO underpricing. In addition, we do not find any substitutive or complementary role between commercial banks and venture capitalists in certifying IPOs.