Underwriting Syndicate Structure and Lead Manager Reputation: An Empirical Study on European Stock Markets

Using a comprehensive sample of 1542 initial public offerings
(IPOs) sold on German, French and British stock markets, we investi-
gate the structure of underwriting syndicates in the presence of reputa-
ble lead managers. We consider two aspects of syndicate structure: the
number of syndicate members and the ratio of the total number of
members to the number of lead managers. First, we find that the lead
manager is often the sole bank to perform the underwriting; the lead
manager delegates part of the tasks of distributing shares to other par-
ticipants in only 41% of the IPOs. An important reason is that a large
fraction of the IPOs in Europe are relatively small. Second, we show
that the extent of task delegation increases with lead manager reputa-
tion because it leads to more co-managers and other managers partici-
pating in the syndicate. However, this effect only occurs for larger
issuances; in general, smaller IPOs are left to smaller and less reputa-
ble underwriters, some of whom nevertheless perform a large number
of small deals. Overall, our findings are consistent with the view that
lead manager reputation generates market segmentation between larger
and smaller issuances.