IPO Monitoring Effectiveness of External Investment Banks and IPO Insiders

Abstract

We investigate whether external investment banks or internal key IPO insiders such as company directors and officers, venture capitalists and institutions that hold an IPO's stock serve as effective monitors of IPO investments over the post-IPO period. We measure median changes in each group's holdings for the sample, finding large changes in these values during a long-run holding period. We find that long-run buy-and-hold returns (BHARs) are positively related to the lead investment bank underwriter reputation and the gross spread demonstrating that the external monitoring by investment banking firms increases the post-IPO firm's value. Holding the underwriter reputation constant, we find that the BHARs are positively related to the gross spread, also indicative of the value of monitoring by external investment banks.

Citation

Gordon, S.A.G. and Conover, J.A. (2011), "IPO Monitoring Effectiveness of External Investment Banks and IPO Insiders", Kensinger, J.W. (Ed.) Research in Finance (Research in Finance, Vol. 27), Emerald Group Publishing Limited, Leeds, pp. 165-194. https://doi.org/10.1108/S0196-3821(2011)0000027008