Working Papers

Pre-Doctoral Research

IPO underwriter’s conflict of interest: When IPO underwriter has stake of the issuer

This study investigates whether IPO overpricing occurs when the underwriter holds shares in the issuing company prior to the offering. The rise of private capital highlights the need to examine private equity and venture capital more closely. Gompers and Lerner (1999) found no evidence of overpricing in IPOs underwritten by investment banks with equity in the firm via a venture capital subsidiary, arguing against regulating such investments. However, they did not account for the IPO lock-up period. This paper considers the 180-day lock-up period and examines how long-term returns change before and after this threshold. The study finds that IPOs with underwriter venture stakes are overpriced and underperform compared to those without such stakes.