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How do financial intermediaries create value in security issues?

Adriani, Fabrizio; Deidda, Luca; Sonderegger, Silvia

Authors

Fabrizio Adriani

Luca Deidda

Silvia Sonderegger



Abstract

We study incentive provision in a model of securities issuance with an informed issuer and uninformed investors. We show that the presence of an informed intermediary may increase surplus even if we allow for collusion between the intermediary and the issuer. Collusion is neutralized by introducing a misalignment between the interests of the issuer and those of the intermediary. To achieve this, the intermediary commits to hold some of the securities. The intermediary then underprices the remaining securities and extracts any investor surplus through a “participation fee.” We provide an explanation for the diffusion of book building and quid pro quo practices in Initial Public Offerings (IPOs).

Journal Article Type Article
Publication Date Jan 1, 2014
Journal Review of Finance
Print ISSN 1572-3097
Electronic ISSN 1573-692X
Publisher Oxford University Press (OUP)
Peer Reviewed Peer Reviewed
Volume 18
Issue 5
APA6 Citation Adriani, F., Deidda, L., & Sonderegger, S. (2014). How do financial intermediaries create value in security issues?. Review of Finance, 18(5), doi:10.1093/rof/rft027
DOI https://doi.org/10.1093/rof/rft027
Publisher URL http://rof.oxfordjournals.org/content/18/5/1915
Copyright Statement Copyright information regarding this work can be found at the following address: http://eprints.nottingh.../end_user_agreement.pdf
Additional Information This is a pre-copyedited, author-produced PDF of an article accepted for publication in Review of Finance following peer review. The version of record Fabrizio Adriani, Luca G. Deidda, and Silvia Sonderegger
How do Financial Intermediaries Create Value in Security Issues? Review of Finance 2014 18: 1915-1951 is available online at: http://rof.oxfordjournals.org/content/18/5/1915

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Copyright Statement
Copyright information regarding this work can be found at the following address: http://eprints.nottingham.ac.uk/end_user_agreement.pdf





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