Valuation uncertainty and IPOs: Investment bank versus commercial bank underwriters

This paper tests commercial bank underwriting for the existence of a conflict of interest versus a certification role. Our tests compare samples of equity 1POs underwritten by both commercial and investment banks. We examine the degree of asymmetric information present in the market for these issues by examining their microstructure trading characteristics. Our results show that greater information asymmetry is present in the after-market when a commercial bank acts as underwriter. The asymmetry resolves itself as the market learns more about each issue, deciding which ones may have involved a conflict. This is consistent with greater uncertainty about the value of commercial-bank- underwritten IPOs, and is also consistent with the market perceiving a possible conflict of interest on the part of commercial banks.