FIN-01-006

Evidence of Information Spillovers in the Production of Investment Banking Services

August 24, 2001

Lawrence M. Benveniste , Alexander Ljungqvist, William J. Wilhelm, Jr. and Xiaoyun Yu

ABSTRACT

We present evidence that firms attempting IPOs learn from the experience of their contemporaries. These information spillovers affect revisions in offer terms and the decision whether to carry through with an offering. The evidence also supports the argument that IPOs are implicitly bundled as a means of promoting more equitable sharing of information production costs. One apparent consequence of this behavior is that while initial returns and IPO volume are positively correlated in the aggregate, the correlation is negative among contemporaneous offerings subject to a common valuation factor. These findings are consistent with the Benveniste, Busaba, and Wilhelm (2001) argument that the dynamics of volume and initial returns in primary equity markets reflect, at least in part, an institutional response to information externalities.


Subject: Corporate Finance/I-Banking and Venture Capital; Capital Structure and Dividend Policy
Classification: Empirical

Lawrence M. Benveniste
Institution: Carlson School of Management, University of Minnesota
Email: lbenveniste@csom.umn.edu

Alexander Ljungqvist
Institution: Stern School of Business, New York University
Email: aljungqv@stern.nyu.edu
Phone: (212) 998-0304
Home Page: http://www.stern.nyu.edu/~aljungqv/

William J. Wilhelm, Jr.
Institution: Carroll School of Management, Boston College
Email: william.wilhelm@bc.edu
Phone: (617) 552-3990
Home Page: http://www2.bc.edu/~wilhelmw/

Xiaoyun Yu
Institution: Kelly School of Business, Indiana University
Email: xiyu@indiana.edu


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