Underwriter reputation and switching

The purpose of this paper is to examine the determinants of firms switching the lead underwriter they use to underwrite their first and second public issues of straight corporate bonds in Japan between 1994 and 2002. In particular, the paper focuses on the role of the lead underwriter's reputation in determining the degree of switching of underwriters between the first and second issues. As measures of an underwriter's reputation, the lead underwriter's rating at the time of the initial issue, the changes in the underwriter's ratings and market shares between the initial and second issue, and the degree of mispricing of the first issue are used. It is found that the probability of a switch of lead underwriters between the first and second issues is significantly increased if the securities company subsidiary of a bank was the initial lead underwriter, or the rating of the lead underwriter of the initial issue falls. There is some evidence to suggest that lead underwriters who can increase the degree of overpricing of the initial issue are more likely to be chosen to act as the lead underwriter of the second issue.