Underwriters' counsel as gatekeeper or turnstile: an empirical analysis of law firm prestige and performance in IPOs

The first 150 words of the full text of this article appear below. Key points

• The article investigates the relationship betweenpricing in an initial public offering (IPO) and the prestigeof the participating underwriters’ law firm.
• The hypothesisof the article is that law firm quality affects how law firmsperform their obligations in IPOs—more prestigious lawfirms acting more independently. Consistent with this hypothesis,the authors find a negative relationship between pre-IPO priceadjustment and the participation of prestigious underwriters’counsel, and a negative relationship between the participationof prestigious underwriters’ counsel and initial return,which is consistent with market trading reflecting the decreasedrisk associated with offerings involving prestigious underwriters’counsel.
• Finally, it is found that certain observable characteristicsindicating diminished likelihood of undisclosed negative information(venture backing and quality of the issuer's counsel) are associatedwith an increased likelihood that prestigious underwriters’counsel is used.