IPO underpricing and the (long-term) relationship between issuers, investors and underwriters

iiiABSTRACTThis thesis researches apotential long-term relationship between issuers and underwritersof Initial Public Offerings (IPOs). In the sample of US offerings in the period2000-2018,an average amount of underpricing of 6.47% is found.This underpricing can be explained by a set of controls. This amount of underpricinghas a negative impact on underwriter market share, although this effect is small and loses statistical significance when lags of market share are included. The results also show that higher underpricing negatively impacts the probability of rehiring in a Follow-on offering. This effect remains significant if underwriter prestige and stabilization practices are taken into account. Lastly, it is shown that the sample contains some IPO waves. In wave years, underwriters have a lower probability of being rehired. Altogether, this thesis proves that the long-term relationship between issuer and underwriter is negatively impacted if underwriters underprice too much in the offerings.