Risk, Reputation, and Interdependence in the Market for Initial Public Offerings: Embedded Networks and the Construction of Organization Value

128 p.Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1998.Recently organizational theorists have become increasingly interested in the study of markets and have provided insights regarding how distinctly social phenomena such as reputation and embedded networks of relationships among the transacting parties affect market behaviors and outcomes. These theorists have not, however, examined the role these social resources play in mediated markets where buyers and sellers do not interact directly, but instead conduct their exchanges via a transaction intermediary. This dissertation takes the social bases of markets as a given and examines how investment banks, acting as transaction intermediaries, use their reputations and networks of relationships with institutional investors and venture capitalists to influence transaction outcomes among buying and selling organizations in the market for initial public offerings. I develop a dual-process model of market mediation to explain how investment banks, acting as transaction intermediaries, use their organizational reputation and networks of relationships with institutional investors and venture capitalists to manage uncertainty and opportunism in the market for initial public offerings. Using a sample of 246 companies which went public in 1992, this study found that greater investment bank embeddedness with institutional investors led to higher stock price premiums over book value and greater post-IPO stock ownership concentration. Underwriter reputation had a positive main effect on ownership concentration and a negative main effect on the level of underwriting commissions paid by the offering firm. Underwriter reputation also had a negative moderating effect on premium over-book value when interacted with embeddedness with investors, and a positive moderating effect on underwriting commissions when interacted with IPO firm quality and embeddedness with investors.U of I OnlyRestricted to the U of I community idenfinitely during batch ingest of legacy ETD