Underwriter Certification, Issuer-Underwriter Matching, and SEO Performance
The introduction of deal types for issues of seasoned equity in which the offer follows quickly after its announcement highlights the role of underwriter certification in the performance of SEOs. Controlling for the matching between underwriters and issuers, underwriter quality is positively related to the announcement effect in rapidly completed SEOs. For these deal types, we also find that the discount is significantly negatively related to underwriter quality. For fully marketed deals we are unable to detect any significant relation between SEO performance and underwriter quality. Issuers pay for the value provided by high-quality underwriters with higher fees.
We are very grateful to Tony Cookson for sharing his R script and for extensive discussions. We also thank Rob Dam, Shaun Davies, Kathleen Hanley, Katie Moon, Brian Waters and participants at the Leeds Finance Brown Bag seminar. We are grateful to Belinda Chen for excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.