3 Researchers have also begun to study the structure of the union, isolated beyond the role of the insurer. In particular, this literature shows that the size of the union (number of banks participating in underwriting) varies according to several key factors. Corwin and Schultz (2005) show that an IPO union increases with the size of emissions (measured by the amount of gross product). They also show that banks that offer good coverage by financial analysts are more likely to be selected as union members. According to Cooney et al. (2004), union members participate in a “beauty contest” in which banks compete for election by issuer and leader. On the same subject, Ljungqvist et al. (2009) show that optimistic research and research coverage for the issuer attract co-management appointments for stock offerings. These relationships through analyst coverage may also increase the likelihood of obtaining more lucrative lead management mandates in the future. In another approach, Davidson et al.
(2006) show that co-managers primarily influence the activities of the aftermarket IPO. They note that the number of co-managers ultimately has an impact on investment risk; For example, in the event of increased price uncertainty, high-tech IPOs employ more co-managers. 17Pichler and Wilhelm (2001) show in their theoretical syndication model that the problem of moral risk in teams can limit the size of the union, as parasitism with the union can increase. However, this compromise is influenced by the reputation of the underwriter lead that structures the union. As Pichler and Wilhelm assert, banks are encouraged to maintain relationships with other serious banks in order to participate in future subcontractings. The Lead Underwriter would then invite other banks in the union to return the favour. As Mr Pichler and Mr Wilhelm still say, banks can, by guaranteeing stable trade unions on emissions, create barriers to entry and, therefore, steal considerable rents by banning less experienced banks from the market, forcing them to secure smaller issues and bear greater risks through smaller and less prestigious unions. If this is the case, we expect a positive relationship between lead underwriter reputation and the size of the union.
7We continue to conduct robustness tests with another measure of reputation based on the number of IPOs instead of products. We get a completely different ranking of underwriters on the market. Further analysis shows that this is due to market segmentation, with larger banks covering larger issues (and therefore larger revenues) and smaller banks focusing on smaller IPOs (but which, on the whole, are more depreciating in terms of numbers). This is consistent with Pichler and Wilhelm (2001)`s view that the leader`s reputation creates a market segmentation between larger and smaller programs. 16An alternative, and perhaps more conventional, view is that more serious leaders are able to attract more banks to join the union and thus sell more of the issue to other banks and delegate more tasks to others than less serious leaders, who might be limited in their ability to form larger unions. This allows serious leaders to reduce their exposure to bizarre risks. This reduction in risk leads to the opposite prognosis: the size of the IPO union is then increased in the presence of a serious leader. This view is deeply rooted in venture capital consortia, where less serious players need to retain a larger share of agreements because they are unable to engage peers (Lerner, 1994).
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