Underpricing Of IPOs By Bulge-Bracket Underwriters Acting As Lead Managers And Sole Book Runners

Abstract

During the dot-com period, prestigious investment banks earned record profits underwriting technology IPOs, but some companies going public also lost funds, potentially, by accepting offer prices well below the opening price or closing price of the first trading day. Several prestigious underwriters have paid penalties, to the NASD and the SEC, to settle allegations about improper distribution of shares of IPOs of stock. However, the fines assessed by regulators have not been the same across investment banks. This study analyzes short-term underpricing and money left on the table by the most prestigious investment banks, bulge-bracket underwriters, when they underwrite initial public offerings of common stock. I find evidence that seems to indicate that some prestigious investment banks consistently underprice IPOs much less than some other banks when they act as lead underwriters and sole book runners.