Does Institutional Trading Affect Underwriting

53 Pages Posted: 12 Aug 2019

See all articles by Amber Anand

Amber Anand

Syracuse University - Whitman School of Management

Paul J. Irvine

Neeley School of Business

Tingting Liu

Iowa State University

Date Written: August 8, 2019

Abstract

This paper investigates the impact of institutional trading on SEO lead underwriter choice. We measure the trading intensity of the lead investment bank in several different ways and find that bank trading has a significant effect on underwriter choice. A bank that concentrates its trading in particular stocks has an improved probability of earning the underwriting mandate in those stocks. We also find that the trading intensity of the lead bank has a significant effect on SEO underpricing and the composition of the underwriting syndicate. We attribute these results to the fact that banks that are large and active traders in an issuer’s stock have a competitive advantage in accessing the current shareholder base. For smaller banks, we show that concentrating the bank’s own trading in the issuer’s stock produces similar effects.

Keywords: Institutional Trading, SEO underwriter choice, SEO underpricing

JEL Classification: G20, G23, G24

Suggested Citation

Anand, Amber and Irvine, Paul J. and Liu, Tingting, Does Institutional Trading Affect Underwriting (August 8, 2019). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3434701

Amber Anand

Syracuse University - Whitman School of Management ( email )

721 University Avenue
Syracuse, NY 13244
United States

Paul J. Irvine (Contact Author)

Neeley School of Business ( email )

Fort Worth, TX 76129
United States

Tingting Liu

Iowa State University ( email )

2330 Gerdin Business Building
Ames, IA 50011
United States

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