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ABSTRACT: Why do firms switch underwriters?

Laurie Krigman, Eller College of Business and Public Administration, University of Arizona
Wayne H. Shaw, Cox School of Business, Southern Methodist University
Kent L. Womack, Amos Tuck School of Business, Dartmouth College

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 "rms switch due to dissatisfaction with underwriter performance at the time of the IPO. A surprising result is that switchers' IPOs were signi"cantly 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 signi"cantly 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. © 2001 Elsevier Science S.A. All rights reserved.

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    Copyright 2002 The Trustees of Dartmouth College. All rights reserved.