Do advisors improve IPO outcomes?

Abstract

Issuers increasingly appoint advisors in IPOs alongside underwriters. We find advisors in aggregate have no effect on first-day returns, withdrawals, or underwriting spreads in European IPOs. However, underpricing of IPOs with generalist advisors (who offer diverse services alongside IPOs) is significantly greater than with specialist IPO advisors and is at the expense of unsophisticated issuers. We link these findings to the different incentives of generalist and specialist advisors. Our results are consistent with naivety on the part of unsophisticated issuers, but more likely with unsophisticated issuers willingly paying for the reputational and other benefits of generalist advisors with IPO underpricing.