The Strategic Behaviour of Underwriters in Valuing IPOs

This chapter studies whether underwriters strategically select comparable firms when valuing Initial Public Offerings (IPOs), and whether this behavior varies across industries. The idea is that the bias in the choice of comparable firms by underwriters is expected to increase when there is more discretion, and discretion is largely affected by the issuer’s industry. We first show that the peers selected by underwriters have higher valuations...