Assortative Matching and Reputation in the Market for First Issues.
Akkus, Oktay; Cookson, J. Anthony; Hortaçsu, Ali. Assortative Matching and Reputation in the Market for First Issues. Management Science. Apr2021, Vol. 67 Issue 4, p2049-2074.ÌýÌýÌýÌý
Using a tractable structural model of the matching equilibrium between underwriters and equity-issuing firms, we study the determinants of value in underwriter–firm relationships. Our estimates imply that high underwriter prestige is associated with 5.3%–14.1% greater equilibrium surplus. According to the structural model, high prestige exhibits a significant certification effect throughout the sample (1985–2010), but there is also a countervailing effect of underwriter prestige that reflects subscriber preferences for more underpricing. Consistent with trading off profits from issuers and subscribers, high-prestige underwriters underprice more in hot markets when rents to catering to subscribers are greatest. This paper was accepted by Gustavo Manso, finance.ÌýÌýÌýÌý
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