Capital raising, underwriting and the certification hypothesis

Booth, James R.; Smith, Richard L.

doi:10.1016/0304-405x(86)90057-7

Cited by 821 publications

(478 citation statements)

References 28 publications

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“…More generally, for a certification to be effective, it must fulfill three conditions: (1) The certifying agent must have reputational capital at stake that would be compromised with an invalid certification; (2) the certifying agent's reputational capital must exceed the largest onetime wealth transfer from a mis-certification; and (3) the certified target must face a cost of leasing the reputational capital of the certifying agent (Booth and Smith (1986)). This final condition is an important one for insuring that the certifying agent would have the proper incentives to invest in its own reputation.…”

Section: A Reputation and Affiliation As Economic Goodsmentioning

confidence: 99%

What Do Entrepreneurs Pay for Venture Capital Affiliation?

2003

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This study empirically evaluates the certification and value-added roles of reputable venture capitalists (VCs). Using a novel sample of entrepreneurial start-ups with multiple financing offers, I analyze financing offers made by competing VCs at the first professional round of start-up funding, holding characteristics of the startup fixed. Offers made by VCs with a high reputation are three times more likely to be accepted, and highreputation VCs acquire start-up equity at a 10-14% discount. The evidence suggests that VCs' "extra-financial" value may be more distinctive than their functionally equivalent financial capital. These extra-financial services can have financial consequences. ABSTRACTThis study empirically evaluates the certification and value-added roles of

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Section: A Reputation and Affiliation As Economic Goodsmentioning

confidence: 99%

What Do Entrepreneurs Pay for Venture Capital Affiliation?

2003

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“…The negative correlations, although insignificant at the .01 level, correspond to characteristics that relate to increasing size of the sponsor: number of offerings, a dummy variable for sponsors that are publicly 19 Our primary focus is not on issues relating to IPO underpricing since our assessment of quality is based on longer-term performance. 20 See, for example, Beatty and Ritter (1986) on the former issue, and Booth and Smith (1986) on the latter. 21 See Table 5 for definitions.…”

Section: Ex Ante Sponsor Characteristicsmentioning

confidence: 99%

Limited Partnerships and Reputation Formation

Kallberg

Liu

Srinivasan

2004

J. Financ. Quant. Anal.

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This paper analyzes the optimal quality decision of a producer in a multi-period setting with reputation effects. Using a unique database of returns on real estate limited partnerships (RELPs), we empirically examine alternative theoretical predictions of optimal producer strategy. In particular, we test whether the producers in our market invest in reputation building by initially selling high quality goods and then lowering quality. Using a variety of statistical tests, we find evidence for reputation building, both in the aggregate and for individual developers.Associate Professors of Finance at the Stern School of Business and Assistant Professor of Finance at the University of Georgia. We thank Stephen Brown, John Clapp, Ned Elton, William Greene, Martin Gruber, George Hamilton, Spencer Jefferies, Chris Mayer, Joe Perez, Rangarajan Sundaram, Gregory Udell and seminar participants at the AFA and the University of Connecticut for helpful comments. We are especially grateful to Matt Spiegel for his discussion of an earlier draft of this paper at the AFA Meetings. We also wish to thank Richard Levine for research assistance with this project. Data for this project were acquired using a research grant from the Stern School of Business. Please address comments to the authors at the Leonard N. Stern School of Business, New York University, Kaufman Management Education Center, Suite 9-190, 44 West 4th Street, New York, NY 10012-1126, and Terry College of Business, Brooks Hall, University of Georgia, Athens GA, 30602-6253, or through email: jkallber@stern.nyu.edu, cliu@stern.nyu.edu and asriniva@terry.uga.edu, respectively. Limited Partnerships and Reputation Formation AbstractThis paper analyzes the optimal quality decision of a producer in a multi-period setting with reputation effects. Using a unique database of returns on real estate limited partnerships (RELPs), we empirically examine alternative theoretical predictions of optimal producer strategy. In particular, we test whether the producers in our market invest in reputation building by initially selling high quality goods and then lowering quality. Using a variety of statistical tests, we find evidence for reputation building, both in the aggregate and for individual developers.2

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“…Several papers in the literature discuss the relation between pricing and quality of the advising agents. Titman and Trueman (1986) consider the choice of an auditor as an important signal, while Booth and Smith (1986) emphasize the quality of the underwriter. The correlation between these variables and firm's value is well supported by empirical findings (Keasey-Short;.…”

Section: Theories Based On Asymmetric Informationmentioning

confidence: 99%