Staff Reports
Do Underwriters Matter? The Impact of the Near Loss of an Equity Underwriter
July 2010 Number 459
Revised: November 2010
JEL classification:  G2, G24, G3, G30, G14

Author: Anna Kovner

The financial crisis provides a natural experiment for testing theoretical predictions of the equity underwriter’s role following an initial public offering. Clients of Bear Stearns, Lehman Brothers, Merrill Lynch, and Wachovia saw their stock prices fall almost 5 percent, on average, on the day it appeared that these institutions might collapse. Representing a loss in equity value of almost $3 billion, the decline was more than 2 percent lower than the abnormal return predicted of other newly public companies. The price impact was worse for companies with fewer monitors, suggesting that underwriters play an important role in monitoring newly public companies. There is no evidence that the abnormal price decrease was related to the role of the underwriter as market maker, lender, or counterparty to investors.

Available only in PDF pdf 48 pages / 227kb
For a published version of this report, see Anna Kovner, "Do Underwriters Matter? The Impact of the Near Loss of an Equity Underwriter," Journal of Financial Intermediation 21, no. 3 (July 2012): 507-29.
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