IPO underwriting and subsequent lending

This study investigates the relation between IPO underwriting and subsequent lending. We find that when a bank underwrites a firm’s IPO, the bank is more likely to provide the issuer with future loans at a lower cost, compared to banks without an IPO underwriting relationship. The evidence also sugg...

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Bibliographic Details
Published in:Journal of banking & finance 2013-12, Vol.37 (12), p.5208-5219
Main Authors: Chen, Hsuan-Chi, Ho, Keng-Yu, Weng, Pei-Shih
Format: Article
Language:English
Subjects:
Bank loan
Bank loans
Banking
Cost control
Costs
Initial public offering
Initial public offerings
Investment banking
Investment banks
Studies
Surplus
Underwriting
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Summary:This study investigates the relation between IPO underwriting and subsequent lending. We find that when a bank underwrites a firm’s IPO, the bank is more likely to provide the issuer with future loans at a lower cost, compared to banks without an IPO underwriting relationship. The evidence also suggests that the underwriting banks share information surplus with the IPO firms in the post-IPO loans, supporting the cost-saving hypothesis. Overall, the evidence for the relation between prior IPO underwriting and subsequent lending supports the notion that firms can derive value from investment bank relationships.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2013.07.041