عوامل موثر بر سهم بازار عرضه اولیه عمومی بانک سرمایه گذاری

This paper examines the effect of several factors on the market share of investment banks that act as book managers in initial public offerings (IPOs) between 1984 and 1995. For established banks, IPO first-day returns, one-year abnormal performance, abnormal compensation, industry specialization, analyst reputation, and association with withdrawn offers have a significant impact on changes in market share. These factors have a more significant effect on market share changes in low-volume IPO markets. These factors have a less significant effect on market share, statistically and economically, for less established banks, consistent with the notion that less reputation is placed at risk.

Corporate finance activities, including the issuance of securities, provide significant revenues for investment banks. The Securities Industry Association (1997), for example, reports that NYSE securities firms received over $11 billion in underwriting fees in 1996 amounting to approximately 10% of total revenues for these firms. Investment banks compete aggressively for new underwriting business. This behavior is particularly true in the market for initial public offerings (IPOs), since underwriting fees as a percentage of proceeds raised are greater for IPOs than for seasoned equity or debt offerings. Also, the investment bank in an initial public offering is commonly retained to underwrite a firm's subsequent security offerings (see James, 1992). An issuer's choice of investment bank is argued to depend on a number of qualitative and quantitative factors, such as the `quality of the bank's people’ (Eccles and Crane, 1988, p. 110), the pricing and performance of past deals underwritten by the bank and the bank's research capability.1 This paper examines the relation between several quantifiable factors and an investment bank's ability to generate underwriting business, as proxied by changes to its IPO market share. A study of market share changes has two advantages. First, Eccles and Crane (1988) note that market share is highly correlated with investment bank profitability. Identification of the relative importance of quantifiable factors in explaining market share changes should, therefore, have practical significance. Second, market share is commonly used in the academic literature as a proxy for investment bank reputation (Megginson and Weiss, 1991; Dunbar, 1998). Banks are credible third party information producers because they lose economic rents from future issues if their information is inaccurate and can expect to gain rents from future issuers if their information is accurate. Market share changes are a reasonable proxy for changes to expected future economic rents.2 A study of market share changes, therefore, also provides insights into how reputation evolves. Market share changes from an initial year to the following year are related to abnormal first-day returns, one-year abnormal returns, abnormal underwriting fees, industry specialization, changes to the reputation of the bank's analysts, and the fraction of withdrawn offerings underwritten by the bank in the initial year. In Booth and Smith's (1986) model, investment banks use their reputation to certify that an issue is not overpriced. While overpricing damages reputation, Beatty and Ritter (1986) also argue that the first-day return is costly since future issuers would avoid banks that leave too much money on the table (i.e. price lower than necessary). While this argument motivates the inclusion of abnormal IPO first-day return as an independent variable, recent evidence of long-run abnormal returns for IPOs (Ritter, 1991; Loughran and Ritter, 1995) suggests that the first-day return may not be a complete measure of mispricing. Consequently, I include long-run abnormal returns, covering one year, as an independent variable. Investment bank fee policy can also be used to enhance a bank's ability to generate future underwriting business. Less-established banks could reduce fees to attract business, whereas established banks could increase their fees as compensation for the rental of their reputation. The industry specialization of an investment bank as reflected by their selection of IPOs should also affect its future market share. Concentrating efforts in a particular industry can enhance a bank's ability to compete for underwriting business, since pricing should be improved due to information spillovers (Booth and Chua, 1996). Well-established banks, possessing resources to develop expertise in several industries, are likely to diversify. The reputation of the bank's analysts is likely to have a positive effect on market share. Finally, Dunbar (1998) argues that withdrawals should harm a bank's ability to compete for future business, as issuers would avoid banks associated with past failures. The empirical evidence in this paper can be summarized as follows. For investment banks with an established reputation, initial overpricing has a negative effect on market share changes, consistent with Booth and Smith's (1986) reputation theory. Very positive first-day returns also have a negative effect on market share changes. Future issuers appear to avoid banks that leave too much money on the table. One-year abnormal stock performance has a positive effect on investment bank market share changes. Negative abnormal spreads result in increased market share, inconsistent with the popular notion that banks do not cut fees to attract business (Lowenstein, Wall Street Journal, April 10, 1997, p. C1; Chen and Ritter, 1999). Industry specialization has a negative impact on market share changes. For reputable banks, improvements to the reputation of the bank's analysts have a positive effect on market share changes. Finally, withdrawals have a negative effect on market share changes for established investment banks. These factors have an insignificant effect on market share changes for less established banks, consistent with the notion that less reputation is placed at risk. There are several other studies that examine the role of investment bank reputation in the IPO market.3 Most studies treat reputation as exogenous, and examine how reputation affects the pricing and performance of IPOs. Carter et al. (1998), for example, find that underpricing is less positive, and one-year abnormal performance is more positive, for IPOs underwritten by reputable investment banks.4 In contrast, only a few papers examine the effect of past IPO performance on investment bank reputation. Beatty and Ritter (1986) find that abnormal first-day returns have a negative effect on investment bank market share. Several recent papers have also considered the effect of long-run IPO performance on market share (Nanda and Yun, 1997; Nanda et al., 1995; Beatty and Vetsuypens, 1995). This paper adds to this literature by examining the effect of several factors on market share. Also, the existing market share studies examine changes over only two periods. This paper considers market share changes over many periods, allowing an examination of the stability of the relations among the specified variables. I find that the relation between these factors and market share changes is stronger, economically and statistically, in declining IPO markets. The organization of the remainder of this paper is as follows. In Section 2, hypotheses regarding the determinants of investment bank reputation changes are developed. The data and empirical methods are described in Section 3. Evidence on the impact of IPO first-day returns, one-year abnormal returns, abnormal spread, industry specialization and analyst reputation on market share is presented in Section 4. The effect of these factors on market share in growing and declining markets is examined in Section 5. The effects of withdrawals are considered in Section 6. In Section 7, I present a case analysis that examines the role of pricing, performance, industry specialization, and analyst reputation in the growth of market share for Friedman Billings Ramsey Group. Finally, I summarize the paper in Section 8.

This paper examines the e ! ect of short-term and one-year abnormal IPO performance, fees, industry specialization, analyst reputation, and association with withdrawals on investment bank IPO market share. The analysis considers di ! erent summary measures of these explanatory variables, and di ! erent seg- ments of the IPO market. For the entire market of IPOs, the maximum abnormal " rst-day return of IPOs underwritten by an established bank has a signi " cantly negative e ! ect on its subsequent market share changes. This " nding is consistent with banks losing market share if they leave too muchmoney on the table. The minimum abnormal " rst-day return of IPOs under- written by an established bank has a positive e ! ect on its subsequent market share changes. Banks lose market share if they are associated with overpriced IPOs, consistent with Booth and Smith ' s (1986) certi " cation theory. Taken together, these results suggest that investment bank market share is enhanced when neither clientele, issuers nor investors, are harmed by the pricing of past deals. The minimum abnormal one-year return of IPOs underwritten by an estab- lished bank in any one year has a positive e ! ect on its subsequent market share changes. This " nding is consistent with either accurate investment bank screen- ing of clients (Chemmanur and Fulghieri, 1994), or aftermarket support. Since the evidence for one-year returns is the opposite of that for initial returns, the market does not appear to view one-year abnormal performance to be a conse- quence of initial mispricing. The maximum abnormal underwriter spread in IPOs underwritten by an established bank has a positive e ! ect on its subsequent market share changes. This " nding is consistent with the view that reputable banks, which expect increased future market share, place more at risk in current o ! erings and, therefore, charge higher fees. Bulge-bracket underwriters largely drive this result, however. These banks experienced increased market share over this period, and charged higher spreads. Their success was more likely due to their ability to serve the growing institutional demand for IPOs than their fee policy. The minimum abnormal spread in IPOs underwritten by an established bank has a negative e ! ect on its subsequent market share change. Reputable banks can also enhance market share by cutting fees, inconsistent with the popular notion that investment banks do not compete on cost. Industry specialization has a negative e ! ect on market share changes for established banks. Since the industry mix of IPOs changes over time, banks are best served by maintaining broad expertise. In addition, the percentage change in analyst rank has a negative e ! ect on investment bank market share changes. This " nding is consistent with the widely argued importance of research capabil- ity in explaining an issuer ' s choice of investment bank. Finally, withdrawals have a negative e ! ect on the ability of investment banks to compete for future underwriting business. Since withdrawals are costly for issuers, banks associated with past failures lose market share. Similar " ndings are obtained when the markets for small and large IPOs are examined. In the market for small IPOs, or o ! erings of less than $ 10 million, the e ! ect of the independent variables on the market share of established banks is less signi " cant, economically and statistically, however. The e ! ect of industry specialization is also di ! erent in this market. Banks concentrating in particular industries increase market share in future years. This " nding is consistent with the less well established banks in this marketplace bene " ting from information spillovers that occur when taking similar " rms public (see Booth and Chua1996). In the market for large IPOs, or o ! erings greater than $ 10 million, the e ! ects of independent variables are economically similar to those identi- " ed in the market for all IPOs. Similar " ndings are also obtained when grow- ing and declining IPO markets are considered separately. The economic and statistical signi " cance of the independent variables is greater in declining markets. In all markets considered, the independent variables have no reliable e ! ect on the market share of less established banks. The lower statistical and economic signi " cance of variables in the market for small IPOs is also consistent with the view that banks having a larger market share in the market for small IPOs are only moderately reputable. This evidence, therefore, is consistent with the theory outlined in Section 2 which argues that these factors have a less signi " cant impact on the market share for less established banks since less reputation is placed at risk. Overall, the analysis indicates that short-run and long-run performance, investment bank fees, industry specialization, analyst reputation, and associ- ation with withdrawals have a signi " cant impact on market share changes for IPOs. Economically, industry specialization is the most important factor, fol- lowed by analyst reputation and initial IPO returns. This " nding is potentially surprising since practitioners tend to emphasize the role of analysts in attracting underwriting business. My measure of analyst reputation is admittedly crude, however. Also, analyst reputation is the most signi " cant factor in explaining the level of investment bank market share. Nonetheless, the " ndings in this paper suggest that investment banks should seriously consider other factors when attempting to increase their market share. The analysis of FBR ' s growth in IPO market share from 1994 to 1997 supports this formal analysis. FBR ' s IPOs have had very positive aftermarket performance. FBR also initially followed a strategy of charging low fees and concentrating on industry segments. While FBR does not have any analysts include in the All-American rankings, research is a key driver for their success, providing anecdotal support for the contention that the analyst ranking change variable in my formal regressions does not fully capture the importance of analysts in helping investment banks attract IPO business. Finally, while the explanatory power of the formal market share change regressions is relatively high, especially in low-volume IPO markets, much of the variation in market share changes remain unexplained. It would be worthwhile, therefore, to search for additional factors to better explain market share cha- nges. Based on the FBR case study, possibilities include the presence of strategic alliances, aftermarket support, and corporate culture. The latter two dimensions could be captured by measuring market-making signi " cance and sta ! turnover, respectively. Other possibilities include the investment bank ' s underwriting activities in other markets, such as debt or preferred stock, and " nancial scandals (see Smith, 1992).