Underwriter Reputation and Repetitive Public Offerings

Abstract A recent examination of underwriter reputation and initial public offerings (IPOs) suggests that one of the reasons prestigious underwriters market low‐risk IPOs is to increase the expected present value of subsequent offerings. There is a greater likelihood that a firm issuing low‐risk IPOs will be a viable future operation with the potential for subsequent offerings than a firm issuing high‐risk IPOs. I examine the hypothesis that the likelihood of subsequent offerings is negatively related to IPO risk. In addition to finding support for this hypothesis, I show that the likelihood of subsequent offerings is positively related to the IPO underwriter's reputation and negatively related to the IPO gross spread. Finally, I find that the likelihood of firms switching IPO underwriters for subsequent offerings decreases with increasing IPO underwriter reputation.