How do financial intermediaries create value in security issues?

Adriani, Fabrizio, Deidda, Luca and Sonderegger, Silvia (2014) How do financial intermediaries create value in security issues? Review of Finance, 18 (5). pp. 1915-1951. ISSN 1573-692X

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We study incentive provision in a model of securities issuance with an informed issuer and uninformed investors. We show that the presence of an informed intermediary may increase surplus even if we allow for collusion between the intermediary and the issuer. Collusion is neutralized by introducing a misalignment between the interests of the issuer and those of the intermediary. To achieve this, the intermediary commits to hold some of the securities. The intermediary then underprices the remaining securities and extracts any investor surplus through a “participation fee.” We provide an explanation for the diffusion of book building and quid pro quo practices in Initial Public Offerings (IPOs).

Item Type: Article
Additional Information: This is a pre-copyedited, author-produced PDF of an article accepted for publication in Review of Finance following peer review. The version of record Fabrizio Adriani, Luca G. Deidda, and Silvia Sonderegger How do Financial Intermediaries Create Value in Security Issues? Review of Finance 2014 18: 1915-1951 is available online at:
Schools/Departments: University of Nottingham, UK > Faculty of Social Sciences > School of Economics
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Depositing User: Sonderegger, Silvia
Date Deposited: 14 Jul 2016 10:36
Last Modified: 13 Oct 2017 16:44

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