GREED OR PRESTIGE? A COMPARATIVE STUDY OF IPOS ACROSS INVESTMENT BANKS IN SINGAPORE

Abstract

In this study, I explore the differences of IPOs in returns and other characteristics across investment banks in Singapore. Prior research on IPOs, based on US samples, shows that that initial and long run returns of an IPO are related to the prestige of the investment banks that underwrites it. Specially, IPOs in the US underwritten by more prestigious investment banks are associated with lower initial returns, and higher or lower long run returns than those underwritten by less prestigious investment banks. In these studies, various measures of prestige are used, some objective (e.g., market share) and others subjective (street reputation based on historical high visibility, etc). Due to the short history of Singapore, it is questionable that there are investment banks in Singapore that have achieved as much of a star status based on historical dealings as, for example, Goldman Sachs. I therefore measure prestige in this study by market share only. I examine differences in average PE, initial returns, and long-term returns of IPOs across investment banks, and between those with high market share and those with low market share. Each measure of performance of each IPO firm is adjusted for that of a non-IPO firm matched on industry and size. I find that IPOs managed by investments with high market share are negatively associated with PE, initial returns, and various measures of long run returns. The results are consistent with the greed hypothesis; that is, as the ban on Westcomb (a major investment bank in Singapore) by SGX for three months for IPO activities suggests, many investment banks have higher market share not because of prestige, but because, driven by potential high fees, they are less selective in deciding which IPO firms they will take public.