The Quality and Price of Investment Banks' Service: Evidence from the PIPE Market

We investigate the market structure and the pricing by placement agents of private investments in public equities (PIPEs). Our findings indicate that more reputable agents are associated with larger offers and with firms possessing lower risk. Agent reputation is positively associated with lower dis...

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Bibliographic Details
Published in:Financial management 2010-06, Vol.39 (2), p.585-612
Main Authors: Dai, Na, Jo, Hoje, Schatzberg, John D.
Format: Article
Language:English
Subjects:
Banks (Finance)
Business reputation
Capital markets
Common stock
Discounts
Economic theory
Fees
Hedge funds
Initial public offerings
Investment analysis
Investment bankers
Investment banking
Investment banks
Investments
Investors
Market prices
Market share
Market structure
Pricing
Private investment
Private placement
Professional fees
Quality management
Quality of service
Reputations
Risk
Securities trading
Studies
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Summary:We investigate the market structure and the pricing by placement agents of private investments in public equities (PIPEs). Our findings indicate that more reputable agents are associated with larger offers and with firms possessing lower risk. Agent reputation is positively associated with lower discounts and an enhanced post-PIPE trading environment. Issuers pay a higher dollar fee for these benefits, although more reputable agents charge a lower percentage fee. The evidence suggests that it is the quality of the issuing firm, and the pricing and reputational concern of the placement agent, that drives the equilibrium in the PIPE market.
ISSN:0046-3892
1755-053X
DOI:10.1111/j.1755-053X.2010.01085.x