Co‐managers, Information, and the Secondary Market Liquidity of Initial Public Offerings

We provide evidence that co‐managers improve initial public offering (IPO) liquidity through the “information” services they provide. Based on a sample of IPOs completed from January 1993 to December 2005, we find that a high number of co‐managers in the syndicate are associated with a lower spread, lower adverse selection costs, and a lower probability of informed trading. Moreover, increases in the offer price revision, in co‐managers’ underwriting rank, and in the number of analyst recommendations are all associated with the improvement in liquidity. This evidence is consistent with the hypotheses that co‐managers’ premarket and postmarket services mitigate information risk in the aftermarket.