IPOs, Europe vs. America

By Megan McArdle

A reader writes:


Having done lots of cap market work on the legal side, I can say with some confidence that some management of going-public issuers perceive that reputable (higher priced) underwriters will stand behind them later - including in market making activities, underwriting of secondary offerings and placement of unregistered subsequent offerings

if things go bad for the newly public issuer.  I.e., the issuers pay the IPO pricing premium as a sort of insurance policy. 

  Management perceives that reputation tracking sufficiently motivates the elite underwriters to honor their implicit insurance policy.  Goldman's reputation is very important to Goldman.

  The divergence from Europe perhaps arises out of European issuers greater use on bank financing, less reliance on capital markets.

  Still it's definitely strange.

This article available online at:

http://www.theatlantic.com/business/archive/2011/06/ipos-europe-vs-america/240236/