Underwriters' counsel as gatekeeper or turnstile: an empirical analysis of law firm prestige and performance in IPOs |
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Authors: | Barondes., Royce de R Nyce, Charles Sanger, Gary C. |
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Affiliation: | * Royce de R. Barondes, Associate Professor of Law, University of Missouri-Columbia School of Law, and Senior Fellow, Contracting and Organizations Research Institute (CORI); Charles Nyce, Senior Director of Knowledge Resources, American Institute for CPCU and the Insurance Institute of America; Gary C. Sanger, Distinguished Professor of Finance, Department of Finance, E.J. Ourso College of Business, Louisiana State University. |
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Abstract: | 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 IPOsmore prestigious lawfirms acting more independently. Consistent with this hypothesis,the authors find a negative relationship between pre-IPO priceadjustment and the participation of prestigious underwriterscounsel, 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 underwriterscounsel.
- 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 underwriterscounsel is used.
| 1. Introduction | Scholarship describes professionals who participate in securitiesofferings, and who represent public companies in . . . [Full Text of this Article] 2. Background | 3. Modelling law firm impact in IPOs | Theories of IPO pricing Relationship between pre-IPO price adjustment and diligence in legal services Extension of Hanley's model Conservative modelonly a portion of the impact is identified Issuer's counsel v underwriters counsel Confirming proper model specification Increased risk of an investment in the issuer affecting probability of engagement of quality law firm Different signs between issuer's lawyer and underwriters lawyer 4. Data | Summary statistics Measure of law firm prestige |