The effects of underwriters on the flotation costs of SEOs and the likelihood of investor participation in equity offerings

Kong, Zeyu (2015) The effects of underwriters on the flotation costs of SEOs and the likelihood of investor participation in equity offerings. PhD thesis, University of Nottingham.

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Abstract

Underwriting is a key factor in equity offerings and many scholars have sought to shed light on the role that underwriters play in the investment banking industry. My thesis extends existing studies by investigating how underwriters affect the flotation costs of SEOs and the likelihood of investor participation in equity offerings.

With the repeal of the US Glass-Steagall Act in 1999, the barrier between commercial banking and investment banking was broken down and commercial banks could also participate in securities underwriting. Given that flotation costs reflect the market perception of a share issue, it is crucial to understand the perceptions that commercial bank co-managers convey to the market.

However, most previous studies did not consider that the effects of commercial bank underwriters on SEO flotation costs may vary in the different situation. The first empirical chapter of my thesis will fill this gap. The empirical results support my hypothesis that the market perception of SEOs underwritten by a commercial bank varies in different circumstances. Commercial bank co-managers can increase SEO flotation costs if their behaviour and motivation convey the impression of opportunism to the market.

It is widely accepted that investment banking is a relationship-based rather than transaction-based business. Nevertheless, due to technical difficulties, few studies have investigated how the underwriter-investor relationship affects investor participation. Therefore, the research reported in my second empirical chapter (Chapter 5) will fill the gap.

The results suggest that: firstly, underwriter–investor networks increase the likelihood of investor participation and such influence is separate from the market function of underwriters; secondly, the underwriter–investor networks are effective not only in pure IPOs and pure SEOs but also interactively; and finally, the relationships built by lead managers are effective, as are those built by co-managers.

Item Type: Thesis (University of Nottingham only) (PhD)
Supervisors: Newton, D.
Keywords: Securities, investment banking, Banks and banking, corporations, investor relations
Subjects: H Social sciences > HG Finance
Faculties/Schools: UK Campuses > Faculty of Social Sciences, Law and Education > Nottingham University Business School
Item ID: 29099
Depositing User: Kong, Zeyu
Date Deposited: 03 Sep 2015 10:30
Last Modified: 15 Sep 2016 08:28
URI: http://eprints.nottingham.ac.uk/id/eprint/29099

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