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Title: How do Financial Intermediaries Create Value in Security Issues?
Authors: Adriani, Fabrizio
Deidda, Luca G.
Sonderegger, Silvia
First Published: 11-Sep-2013
Publisher: Oxford University Press (OUP) for European Finance Association
Citation: Review of Finance, 2014, 18 (5), pp. 1915-1951
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).
DOI Link: 10.1093/rof/rft027
ISSN: 1572-3097
eISSN: 1573-692X
Version: Post-print
Status: Peer-reviewed
Type: Journal Article
Rights: Copyright © the authors, 2014. Published by Oxford University Press [on behalf of the European Finance Association]. This article is distributed under the terms of the Creative Commons Attribution-Non Commercial-No Derivatives License ( ), which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.
Appears in Collections:Published Articles, Dept. of Economics

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