Why do firms switch underwriters?

• Published in: Journal of financial economics Vol. 60; no. 2; pp. 245 - 284
• Main Authors: Krigman, Laurie, Shaw, Wayne H, Womack, Kent L
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01-05-2001; Elsevier; Elsevier Sequoia S.A
• Series: Journal of Financial Economics
• Subjects: All-star analysts; Changes; Hypotheses; Initial public offerings; Investment bankers; Reputation; Sell-side research; Studies; Underpricing; Underwriter services; Underwriting; United States > US; Underpricing; G24; Sell-side research; G25; Underwriter services; Reputation; All-star analysts
• ISSN: 0304-405X; 1879-2774
• DOI: 10.1016/S0304-405X(01)00045-9

In the mid-1990s, 30% of firms completing an SEO within three years of their IPO switched lead underwriter. This article provides evidence on why they switched. Contrary to predictions of prior research, there is little evidence that firms switch due to dissatisfaction with underwriter performance at the time of the IPO. A surprising result is that switchers’ IPOs were significantly less underpriced than non-switchers’ IPOs. However, switchers raised fewer proceeds than expected, compared to the mid-point of the filing range, while non-switchers raised significantly more proceeds. There are two main reasons for switching. Firms graduate to higher reputation underwriters, and they strategically buy additional and influential analyst coverage from the new lead underwriter. Survey results support these conclusions.