THE ROLE OF INVESTMENT BANK REPUTATION AND RELATIONSHIPS IN EQUITY PRIVATE PLACEMENTS

We explore the role of placement agents in equity private placements. Reputable agents are more likely to place shares of firms that have performed better and that have had frequent prior relationships with the agent. Controlling for self‐selection and endogeneity, firms using reputable agents offer...

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Bibliographic Details
Published inThe Journal of financial research Vol. 35; no. 2; pp. 183 - 210
Main Authors Erhemjamts, Otgontsetseg, Raman, Kartik
Format Journal Article
LanguageEnglish
Published Malden, USA Blackwell Publishing Inc 01.06.2012
Wiley Subscription Services, Inc
Subjects
Equity
G14
G24
G32
Investment banking
Private placement
Professional relationships
Reputations
Studies
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Summary:We explore the role of placement agents in equity private placements. Reputable agents are more likely to place shares of firms that have performed better and that have had frequent prior relationships with the agent. Controlling for self‐selection and endogeneity, firms using reputable agents offer smaller price discounts. However, issuers having frequent prior relationships with placement agents incur higher gross spreads. Although the results support the certification role of investment banks in private placements, they also shed light on the costs incurred by issuers that frequently rely on the same investment bank.
Bibliography:ArticleID:JFIR1314
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We thank the editor (Jayant Kale) and the anonymous referee for their valuable comments during the review process. We are also thankful for helpful comments from Dhaval Dave, Lee Gagan, Atul Gupta, Murali Jagannathan, Sudarshan Jayaraman, Srini Krishnamurthy, Husayn Shahrur, Lakshmanan Shivakumar, Eli Talmor, Ane Tamayo, Oktay Urcan, Florin Vasvari, Chip Wiggins, and seminar participants at Bentley University, London Business School, and 2008 Financial Management Association meetings. We are solely responsible for any errors.
ISSN:0270-2592
1475-6803
DOI:10.1111/j.1475-6803.2012.01314.x