Sustainability of Analyst Recommendations in Multiple Lead Underwriter IPOs

Round 1

Reviewer 1 Report

The problems are generally grammatical some clarification of points to be considered.  I accepted the methodology embedded in the study and am impressed with the structure and design of the methodology.  There may be a technical difficulty with the suggested corrections, the physical copy I used to review has different line numbers than the online version and there appear to have been some changes made.  Due to my tardiness in completing the review, I will submit according to my original document, which I can scan and forward if necessary.  My comments are succinct, and brief, due to time, not a desire to be rude.

Suggested edits or concerns (Line number: comment):

30:  delete {a} new competition... between lead underwriters {even after underwriter selection to underwriting business.}

37: reword "trade off making biased their reports for trade generation" - incorrect grammatically and awkward.

62 … since 2000 turned bearish,

96 - 101: delete "that"  and "one of the most ideal candidates for the dimensions..... " is vague and awkward.  reword.

156: and uphold their reputation....

161:  delete 'first' - too many in the sentence.  AND …. in the IPO syndicate and it's relationship to sustainability.

166:  The competition operationalized in most previous studies... is awkward.  It's repeatedly used in the next several sentenances- seems repetitive.  Might want to consider substitutes.

175 ...informativeness value is shortlived.  rather than "lasts shortly"

188: "They" - who are you referencing?  All papers previously referenced or just one?

204: delete "that"

226 - in my version author 44 is not referenced.    I think you meant line to use 44 instead of 43.

238:  generates instead of “generate”

240-241:  Isn’t excessive optimism an implied statement of lower quality and hence relevant?  Would suggest revising.

243:   Delete “On the other hand, even” start with: In the presence of increased competition….

244:  ….more accurate and informative coverage because…. Use of “analyst” is redundant.

249: analysts and studies have shown aggressive research…

258: throughout the paper the authors use a reference number denoted in brackets to refer to cited works.  Here they use name, year (Graham, 1999).  I prefer the name and year, but will defer to the editor or author’s preference.  However, it should be consistent, regardless of the choice.    Also, would recommend deleting the ‘and’ and correct “great”- …more accomplished, prestigious, and therefore deemed to have a greater….

259:  Authors used “Established” – do they mean “Enhanced”?

265:  Delete ‘deal’ and correct relationship – relationships.

272:  reputation they have built over time.

299-302:  Would break into 2 sentences.  Is vague.

350: …..resources for analysts with the expectation of more accurate recommendations…

378: looks like a different font

530:  Spacing/kerning gap.

537:  delete “a little bit less” and use fewer Strong Buys than Buy ratings

542: ….exhibits quite the opposite picture than Panel A.

549:  downgrades

557:  should do nothing but support

558:  …story told in Panel C.

559:  …issue low ratings.

Table 6:  Formatting errors.  Significance asterisks wrap around.

Table 7:  Formatting errors.  Parentheses with “-“ wrap around.

847:  3 month holding period return of -0.0898% annualizes to 22.63%?  8.98 basis point return over 3 months is a positive 22% anualized?  Something’s wrong.

861:  60 (3 months)???  Reads “2 months” – using 20 trading days a month.

867:  data of G7 countries for the same sample period.  Delete the group comment, G7 is well known, detail is redundant.

934:  delete “therein”

943:  in the presence of increased …

944:  …more optimistic in order to support their analysis….

Author Response

We thank both the reviewers for carefully reading our paper and for the very insightful feedback, and the editor for extending to us an opportunity to revise the paper. Especially, we really appreciate the reviewer’s patient and detailed comments. We have addressed all the comments as advised by the referee. We believe that the revised version of the manuscript has consequently improved significantly thanks to invaluable comments. We are still open to suggestions and feedback from the reviewers to further improve the paper and its contribution.

The referee was concerned about non-matching line numbers, but we used the originally submitted manuscript as a reference to locate the lines pointed out by the referee. We respond to some of the comments that need further clarifications. We do not provide responses for comments for which the referee kindly provided how corrections should be made in detail. Referee comments are italicized:

Reviewer Comments:

37: reword "trade off making biased their reports for trade generation" - incorrect grammatically and awkward.

[Response]

Per your comment, we rephrased the sentence as “Analysts sometimes bias their research reports for trade generation instead of building and maintaining reputation through informative reports”

96 - 101: delete "that"  and "one of the most ideal candidates for the dimensions..... " is vague and awkward.  reword.

[Response]

We rephrased it as “one of the most ideal candidates for the non-price dimensions of competition...

166:  The competition operationalized in most previous studies... is awkward.  It's repeatedly used in the next several sentences- seems repetitive.  Might want to consider substitutes.

[Response]

We replaced it with “formulated.”

350: …..resources for analysts with the expectation of more accurate

[Response]

We rephrased the sentence as “Larger investment banks tend to have greater resources that enable analysts to generate more accurate recommendations”

847:  3 month holding period return of -0.0898% annualizes to 22.63%?  8.98 basis point return over 3 months is a positive 22% anualized?  Something’s wrong.

[Response]

We added a negative sign to 22% for clarity.

861:  60 (3 months)???  Reads “2 months” – using 20 trading days a month.

[Response]

A month usually has about 20 trading days. It is conventional in the calendar time portfolio approach to use 20 days for one month. This approach uses returns in a row and, therefore, 20 trading days approximately correspond to one month. We just followed the convention prior studies dominantly used.

We really appreciate again for your considerate, patient comments.

Author Response File: Author Response.docx

Reviewer 2 Report

The theme fits organically with the profile of Sustainability.

We can see a scientific description of a very novell professional phenomenon.

The presented topic not short, but it is readable and well structured, understood. 

The mathematical-statistical support is adequate and thorough.

I have just one problem with this article.

The subject is a very new phenomenon in the scientific gown that is taking place today. 

However, the literature is old-fashioned, slightly aged.

I woul recommend a stronger literature search, to find the latest papers and then incorporating them and making some adjustments to the content, of course. 

Author Response

Response to the comments for

“Sustainability of Analyst Recommendations in Multiple Lead Underwriter IPOs”

Manuscript ID: sustainability-722812

We thank both the reviewers for carefully reading our paper and for the very insightful feedback, and the editor for extending to us an opportunity to revise the paper. We have attempted to address all your comments. We believe that the revised version of the manuscript has consequently improved significantly thanks to invaluable comments. We are still open to suggestions and feedback from the reviewers to further improve the paper and its contribution. We respond to each of the points raised by them, using their order, below (referee comments are italicized):

Reviewer 1 Major Comments:

 The theme fits organically with the profile of Sustainability.

We can see a scientific description of a very novel professional phenomenon.

The presented topic not short, but it is readable and well structured, understood. 

The mathematical-statistical support is adequate and thorough. 

• I have just one problem with this article.However, the literature is old-fashioned, slightly aged.

1. I would recommend a stronger literature search, to find the latest papers and then incorporating them and making some adjustments to the content, of course. 
2. The subject is a very new phenomenon in the scientific gown that is taking place today. 

[Response]

Per your comment, we have searched for new papers. We were able to find three tightly linked papers that can be added to our paper:

• Drake, M.; Joos, P.; Pacelli, J.; Twedt, B. Analyst forecast bundling. Manage. Sci. 2019 (in press). [CrossRef]
• Dunbara, C.; King, M.R. Multiple bookrunners, bargaining power, and the pricing of IPOs. 2018 (unpublished). Available online: http://www.fmaconferences.org/SanDiego/Papers/FMA2018_Multiple_Bookrunners_Bargaining_and_IPOs180105.pdf (accessed on February 16 2020)
• Yao-Min Chiang, Michelle Lowry, Yiming Qian (2019) The Information Advantage of Underwriters in IPOs. Management Science 65(12):5721-5740. [CrossRef]

We have placed these papers in the places where most relevant. Now we feel our paper is current and up to date. We checked about 50 potentially relevant papers but most of them were not in line with our paper’s main topic. We really appreciate your comment again.

Reviewer 3 Report

Main Comments and Suggestions

You should clarify the contributions of the paper which are not elaborated well in the current paper. You can talk about the following contributions: What insights can you provide based on your finding? Do they push forward our understanding? What should we do with your research? Do you have any suggestions to improve the current regulation or practice? Why is it important to study analysts in this particular setting? Adding the above discussion and extend your literature review may help you make more contributions and position your contributions better.

The paper treats all analysts the same; however according to Foerster et al. 2020. Analyst Innate Ability, Information, and Insider Trading, analysts’ ability should play an important role in your setting. You need to discuss it and how different analysts can recommend differently.

You should study and rationalize the use of firm size measures in the literature since frim size is the key variable justify your firm size measure. The results may not be robust to different measures of firm size, which is very common in this area.

Minor Comments and Suggestions

The last section of conclusion is too short. In this section, you should summarize all your findings, their implications to researchers and practitioners, future direction for research, limitation of the current study, etc.

In conclusion, I would like to thank the authors for a very interesting, unique and potentially important paper. Hope these comments and suggestions can help further their study.

Author Response

Response to the comments for

“Sustainability of Analyst Recommendations in Multiple Lead Underwriter IPOs”

Manuscript ID: sustainability-722812

We thank both the reviewers for carefully reading our paper and for the very insightful feedback, and the editor for extending to us an opportunity to revise the paper. We have attempted to address all your comments. We believe that the revised version of the manuscript has consequently improved significantly thanks to invaluable comments. We are still open to suggestions and feedback from the reviewers to further improve the paper and its contribution. We respond to each of the points raised by them, using their order, below (referee comments are italicized):

Reviewer 2 Major Comments:

• You should clarify the contributions of the paper which are not elaborated well in the current paper. You can talk about the following contributions: What insights can you provide based on your finding? Do they push forward our understanding? What should we do with your research? Do you have any suggestions to improve the current regulation or practice? Why is it important to study analysts in this particular setting? Adding the above discussion and extend your literature review may help you make more contributions and position your contributions better.

[Response]

We really appreciate this aspect of the paper. We agree that our submitted manuscript did not have clear readability in terms of contributions. To resolve this issue, we wrote and strengthened the contributions our paper makes in relation to prior literature. Below is the contributions part in the last section of the paper:

This paper contributes to the rich literature on affiliated analyst optimism. First, our paper is one of the first few papers that explore the new organizational form in the IPO syndicate in relation to sustainability. Although a school of papers have addressed the conflict of interest in analyst coverage and this new phenomenon—MLU IPOs—has been pronounced over a decade, how the newly emerged syndicate structure—MLUs—in IPOs affects a multiplicity of the issuer welfare remain unexplored. Therefore, we expect our findings to meaningfully enhance our understanding on the consequences of the structural change in the IPO syndicate. Second, MLU IPOs provide a unique setting where the effect of competition can be captured. The competition operationalized in most previous studies is through the number of competitors in the whole market [8,28] and is determined exogenously while the competition in this paper is endogenously formed and is operationalized by a new organizational form. Competition in this paper cannot be operationalized by exogenous shock as in [8,28]. The effect of competition and analyst behavior are examined in a different spectrum from prior work. Finally, we provide new empirical evidence that captures how the new syndicate structure and the newly created competition among lead underwriters in MLU IPOs affect analyst behavior­­––analyst optimism and investment value. In a nutshell, MLU LU analysts create more informative recommendations presumably using superior information from better resources and on average better ability than their competitors while suppressing optimism to uphold reputation. However, the informativeness lasts shortly. Unlike the popular conflict of interest view, our findings suggest that reputation upholding incentive dominates pressure from competition and that the new organizational structure and its newly emerged competition between lead underwriters therein facilitate more informative analyst coverage––which is consistent with the reputation upholding hypothesis––whose predictive power, however, lasts shortly as prior literature found.

• The paper treats all analysts the same; however according to Foerster et al. 2020. Analyst Innate Ability, Information, and Insider Trading, analysts’ ability should play an important role in your setting. You need to discuss it and how different analysts can recommend differently.

[Response]

We agree that analyst innate ability is one of the most important determinants of analyst accuracy and optimism. It is, however, not easy to be estimated in the form of a continuous variable since analyst talents would be unobserved characteristics of analysts. Therefore, based on previous studies on analyst coverage, we use some relevant proxies for analyst talents such as All-Star analyst dummy, analysts’ experience and reputation. Even if these variables may not be sufficient for explaining the analyst innate ability, we believe that the empirical models incorporate the issue, at least in part. Also, compared to previous studies which used one or two of those three variables, we controlled for analyst talents more successfully by including all three variables. In addition, the variable, analyst firm size, also can serve as the proxy for analyst’s ability in that larger investment banks would have greater researching resources for their analysts. In the revised manuscript, we added a new sentence to address this issue in Section 3.2:

“We add following control variables to the estimation that are found in the literature to impact analyst accuracy and optimism: Ln(Analyst Firm Size), Ln(Analyst Experience), Issuer Size, All-Star Analyst, Reputation, Prior 6 Month Return, and VC-backed. Among these variables, Ln(Analyst Firm Size), Ln(Analyst Experience), All-Star Analyst and Reputation serve as the proxies for analyst innate ability which is an unobserved variable.”

• You should study and rationalize the use of firm size measures in the literature since frim size is the key variable justify your firm size measure. The results may not be robust to different measures of firm size, which is very common in this area.

[Response]

We agree that how to measure firm size may significantly affect the empirical results. The firm size, called Issuer Size in the manuscript, is based on market capitalization. Largely, researchers use total assets, total sales and market capitalization as the proxies of firm size, while what they implicate may differ each other. According to Dang, Li and Yang(2018), market capitalization which reflects only the ownership of equity is more market oriented and forward looking. Thus, researchers use market cap to control for firm size in the stock market. In contrast to market cap, total assets measure the firm’s total resource while total sales which is not forward looking matters on the product market. In addition, those proxies for firm size are high correlated each other, suggesting the high possibility of muticollinearity if more than one proxies are included in regression models. In short, since our research are mainly about analyst behavior in the capital market, market cap might be the most appropriate proxy for firm size. We address this issue in Section 3.2:

“Issuer Size is the natural logarithm of the market capitalization where the market capitalization is the product of the closing price and the number of shares outstanding on the 25th trading day. We use market cap as a proxy for firm size since it is market oriented and forward looking. Among other proxies of firm size, total assets represent the total resource of firms and total sales which is not forward looking matters on the product market.”

Reference

Dang, C., Z. Li, and C. Yang, 2018, Measuring firm size in empirical corporate finance, Journal of Banking & Finance 86, 159-176.

Minor Comments and Suggestions:

• The last section of conclusion is too short. In this section, you should summarize all your findings, their implications to researchers and practitioners, future direction for research, limitation of the current study, etc.

[Response]

We cannot agree more about this idea. As advised, we summarized our findings, discussed the position of our paper, and avenue for future research. The revamped last section of the paper is as follows:

5. Summary, Contribution, and Future Research

A new organizational form in the IPO syndicate—MLU (multiple lead underwriter) IPOs—and new competition between lead underwriters after underwriter selection therein have appeared, which is not present in SLU (single lead underwriter) IPOs. It is plausible that this new structure with heightened deal complexity and increased competition will affect the lead underwriter affiliated analyst behavior in MLU IPOs through pressure and incentives. Using 6,950 recommendations from January 2001 to December 2011 for IPOs in the 2001-2010 period, we attempt to capture how the newly emerged syndicate structure and competition affect the sustainability of analyst recommendations in MLU IPOs. Especially, we focus on two aspects: analyst optimism and informativeness.

On the one hand, increased competition may force even higher optimism over and above the traditional affiliated optimism in SLU IPOs. On the other hand, even in the present of the increased competition, MLU analysts may not be more optimistic to uphold their analyst- and bank-level reputation because these investment banks and analysts are on average more prestigious. However, being more optimistic could be driven by either information or certain economic benefits with no information content. So, we compare the investment value of MLU affiliated and SLU affiliated recommendations in order to examine analyst optimism in MLU IPOs.

We find in the analysis of analyst optimism bias using both rating levels and changes that MLU LU analysts in general tend to be not more optimistic while being supportive for the issuer by exhibiting greater reluctance to downgrade, compared to SLU LU analysts. We find the qualitatively same result in the analysis after controlling for selection bias in the process of selecting MLUs.

We explore the investment value of the MLU LU recommendations using two approaches: the CAR event window approach to measure immediate market reactions and the calendar time portfolio approach to capture the mid-term investment value. The results based on the CAR approach show that MLU LU recommendations are more informative for both Buy and Sell rating categories with greater market reactions to the directions that these rating categories recommend. When recommendations are further classified into initiations, upgrades, downgrades, and reiterations, most informative recommendations are found in rating changes—upgrades and downgrades. Our results are robust to different specifications and endogeneity correction.

In the test of the mid-term investment value using the calendar time portfolio with various holding (investment) horizons, we find no evidence of abnormal returns for any group of recommendations, suggesting that informativeness quickly fades away. This insignificant result also suggests that the significant initial market reactions are not overreaction by irrational investors given the absence of subsequent reversal in returns.

This paper contributes to the rich literature on affiliated analyst optimism. First, our paper is one of the first few papers that explore the new organizational form in the IPO syndicate in relation to sustainability. Although a school of papers have addressed the conflict of interest in analyst coverage and this new phenomenon—MLU IPOs—has been pronounced over a decade, how the newly emerged syndicate structure—MLUs—in IPOs affects a multiplicity of the issuer welfare remain unexplored. Therefore, we expect our findings to meaningfully enhance our understanding on the consequences of the structural change in the IPO syndicate. Second, MLU IPOs provide a unique setting where the effect of competition can be captured. The competition operationalized in most previous studies is through the number of competitors in the whole market [8,28] and is determined exogenously while the competition in this paper is endogenously formed and is operationalized by a new organizational form. Competition in this paper cannot be operationalized by exogenous shock as in [8,28]. The effect of competition and analyst behavior are examined in a different spectrum from prior work. Finally, we provide new empirical evidence that captures how the new syndicate structure and the newly created competition among lead underwriters in MLU IPOs affect analyst behavior­­––analyst optimism and investment value. In a nutshell, MLU LU analysts create more informative recommendations presumably using superior information from better resources and on average better ability than their competitors while suppressing optimism to uphold reputation. However, the informativeness lasts shortly. Unlike the popular conflict of interest view, our findings suggest that reputation upholding incentive dominates pressure from competition and that the new organizational structure and its newly emerged competition between lead underwriters therein facilitate more informative analyst coverage––which is consistent with the reputation upholding hypothesis––whose predictive power, however, lasts shortly as prior literature found [24].

We attempt to address analyst bias that may arise due to a new syndicate structure as comprehensive as possible in this study. No substantial prior research has been done in this area. In this respect, this paper makes a meaningful stride towards the underexplored area of the literature. There are, however, still a substantial amount of issues that can be explored to further our understanding on the implications of the new and readily prevalent IPO syndicate structure in relation to key metrics in the IPO literature. The most imminent issue to be addressed would be underpricing—first trading-day price runup. How a syndicate with MLUs affects pricing accuracy or bias is highly intriguing since underpricing is arguably the single most studied but still puzzling topic in finance. Underpricing itself is driven by multifaceted incentives and forces and has huge economic consequences on IPO stakeholders and general investors in the market. Entangling the systematic effect of the new syndicate structure on IPO pricing is the one of the most imminent and meaningful tasks in the IPO literature. Another aspect of the MLU IPOs the future research needs to explore is to examine the mediating role of the relationship between lead underwriters. Relationship would make huge differences in terms of syndicate efficacy depending on whether syndicate formation is formed purely strategically or is simply based on reciprocity where a certain group of investment banks mutually invite to syndication over time to exchange favors and to form exclusivity for stable revenues. Examining the transition of syndicate structure from SLU to MLU or vice versa by tracking the same issuers over time would also help understand the economic and strategic motivations for the emergence of the MLU IPOs. Directing our attention to other various aspects of the IPO syndicate structure other than the number of lead underwriters would ascertain balanced understanding with a holistic perspective on the implications of the newly popularized syndicate structure for IPOs.

Reviewer 4 Report

I would like to congratulate the authors for the topic chosen and also for the empirical results obtained in their study.

The paper follows the standard scientific criteria of the journal and presents interesting results regarding an important topic.

However, I would like to ask the authors to emphasize into a more clear and concise manner the empirical results and the conclusions adding also  some future directions in the research starting from this paper.

Author Response

Response to the comments for

“Sustainability of Analyst Recommendations in Multiple Lead Underwriter IPOs”

Manuscript ID: sustainability-722812

We thank both the reviewers for carefully reading our paper and for the very insightful feedback, and the editor for extending to us an opportunity to revise the paper. We have attempted to address all your comments. We believe that the revised version of the manuscript has consequently improved significantly thanks to invaluable comments. We are still open to suggestions and feedback from the reviewers to further improve the paper and its contribution. We respond to each of the points raised by them, using their order, below (referee comments are italicized):

Reviewer 3 Major Comments:

I would like to congratulate the authors for the topic chosen and also for the empirical results obtained in their study.

The paper follows the standard scientific criteria of the journal and presents interesting results regarding an important topic.

• However, I would like to ask the authors to emphasize into a more clear and concise manner the empirical results and the conclusions adding also some future directions in the research starting from this paper.

[Response]

We cannot agree more about this idea. As advised, we summarized our findings, discussed the position of our paper in the literature, and avenue for future research. The revamped last section of the paper is as follows:

5. Summary, Contribution, and Future Research

A new organizational form in the IPO syndicate—MLU (multiple lead underwriter) IPOs—and new competition between lead underwriters after underwriter selection therein have appeared, which is not present in SLU (single lead underwriter) IPOs. It is plausible that this new structure with heightened deal complexity and increased competition will affect the lead underwriter affiliated analyst behavior in MLU IPOs through pressure and incentives. Using 6,950 recommendations from January 2001 to December 2011 for IPOs in the 2001-2010 period, we attempt to capture how the newly emerged syndicate structure and competition affect the sustainability of analyst recommendations in MLU IPOs. Especially, we focus on two aspects: analyst optimism and informativeness.

On the one hand, increased competition may force even higher optimism over and above the traditional affiliated optimism in SLU IPOs. On the other hand, even in the present of the increased competition, MLU analysts may not be more optimistic to uphold their analyst- and bank-level reputation because these investment banks and analysts are on average more prestigious. However, being more optimistic could be driven by either information or certain economic benefits with no information content. So, we compare the investment value of MLU affiliated and SLU affiliated recommendations in order to examine analyst optimism in MLU IPOs.

We find in the analysis of analyst optimism bias using both rating levels and changes that MLU LU analysts in general tend to be not more optimistic while being supportive for the issuer by exhibiting greater reluctance to downgrade, compared to SLU LU analysts. We find the qualitatively same result in the analysis after controlling for selection bias in the process of selecting MLUs.

We explore the investment value of the MLU LU recommendations using two approaches: the CAR event window approach to measure immediate market reactions and the calendar time portfolio approach to capture the mid-term investment value. The results based on the CAR approach show that MLU LU recommendations are more informative for both Buy and Sell rating categories with greater market reactions to the directions that these rating categories recommend. When recommendations are further classified into initiations, upgrades, downgrades, and reiterations, most informative recommendations are found in rating changes—upgrades and downgrades. Our results are robust to different specifications and endogeneity correction.

In the test of the mid-term investment value using the calendar time portfolio with various holding (investment) horizons, we find no evidence of abnormal returns for any group of recommendations, suggesting that informativeness quickly fades away. This insignificant result also suggests that the significant initial market reactions are not overreaction by irrational investors given the absence of subsequent reversal in returns.

This paper contributes to the rich literature on affiliated analyst optimism. First, our paper is one of the first few papers that explore the new organizational form in the IPO syndicate in relation to sustainability. Although a school of papers have addressed the conflict of interest in analyst coverage and this new phenomenon—MLU IPOs—has been pronounced over a decade, how the newly emerged syndicate structure—MLUs—in IPOs affects a multiplicity of the issuer welfare remain unexplored. Therefore, we expect our findings to meaningfully enhance our understanding on the consequences of the structural change in the IPO syndicate. Second, MLU IPOs provide a unique setting where the effect of competition can be captured. The competition operationalized in most previous studies is through the number of competitors in the whole market [8,28] and is determined exogenously while the competition in this paper is endogenously formed and is operationalized by a new organizational form. Competition in this paper cannot be operationalized by exogenous shock as in [8,28]. The effect of competition and analyst behavior are examined in a different spectrum from prior work. Finally, we provide new empirical evidence that captures how the new syndicate structure and the newly created competition among lead underwriters in MLU IPOs affect analyst behavior­­––analyst optimism and investment value. In a nutshell, MLU LU analysts create more informative recommendations presumably using superior information from better resources and on average better ability than their competitors while suppressing optimism to uphold reputation. However, the informativeness lasts shortly. Unlike the popular conflict of interest view, our findings suggest that reputation upholding incentive dominates pressure from competition and that the new organizational structure and its newly emerged competition between lead underwriters therein facilitate more informative analyst coverage––which is consistent with the reputation upholding hypothesis––whose predictive power, however, lasts shortly as prior literature found [24].

We attempt to address analyst bias that may arise due to a new syndicate structure as comprehensive as possible in this study. No substantial prior research has been done in this area. In this respect, this paper makes a meaningful stride towards the underexplored area of the literature. There are, however, still a substantial amount of issues that can be explored to further our understanding on the implications of the new and readily prevalent IPO syndicate structure in relation to key metrics in the IPO literature. The most imminent issue to be addressed would be underpricing—first trading-day price runup. How a syndicate with MLUs affects pricing accuracy or bias is highly intriguing since underpricing is arguably the single most studied but still puzzling topic in finance. Underpricing itself is driven by multifaceted incentives and forces and has huge economic consequences on IPO stakeholders and general investors in the market. Entangling the systematic effect of the new syndicate structure on IPO pricing is the one of the most imminent and meaningful tasks in the IPO literature. Another aspect of the MLU IPOs the future research needs to explore is to examine the mediating role of the relationship between lead underwriters. Relationship would make huge differences in terms of syndicate efficacy depending on whether syndicate formation is formed purely strategically or is simply based on reciprocity where a certain group of investment banks mutually invite to syndication over time to exchange favors and to form exclusivity for stable revenues. Examining the transition of syndicate structure from SLU to MLU or vice versa by tracking the same issuers over time would also help understand the economic and strategic motivations for the emergence of the MLU IPOs. Directing our attention to other various aspects of the IPO syndicate structure other than the number of lead underwriters would ascertain balanced understanding with a holistic perspective on the implications of the newly popularized syndicate structure for IPOs.

Round 2

Reviewer 3 Report

Well done. Some last comments:

need to cite Foerster 2020 after the sentence you add.

link more to recent Sustainability literature. For instance, a recent paper Li, F., Young, B., Morris, T. 2019. Corporate Visibility in Print Media and Corporate Social Responsibility. Sustainability forthcoming. Multi lead IPOs may be more visible and therefore could affect sustainability.

Author Response

We thank both the reviewers for carefully reading our paper and for patient and detailed comments, and the editor for extending to us an opportunity to revise the paper. We have addressed all the comments as advised by the referee. We believe that the revised version of the manuscript has consequently improved significantly thanks to invaluable comments. We are still open to suggestions and feedback from the reviewers to further improve the paper and its contribution. We respond to the points raised by them (referee comments are italicized):

Reviewer Comments:

Need to cite Foerster 2020 after the sentence you add.

Link more to recent Sustainability literature. For instance, a recent paper Li, F., Young, B., Morris, T. 2019. Corporate Visibility in Print Media and Corporate Social Responsibility. Sustainability forthcoming. Multi lead IPOs may be more visible and therefore could affect sustainability.

[Response]

According to what we found in the website, the full manuscript of Foerster et al. (2020) is not available at this point. Therefore, we alternatively cited Dang, Foerster, Li and Tang (2019) emphasizing on the importance of analyst talents. We hope for your understanding.

We also cited two more papers published in the Sustainability. One is Kim(2019) studying the underwriter reputation and the other is Li, Liu, Liu and Tsai(2018) investigating IPO underpricing in the Chinese market.

References

• Dang, C.; Foerster, S.; Li, Z.; Tang, Z. Analyst talent, information, and investment strategies, SSRN working paper, 2019. [CrossRef]
• Kim, N.Y. Do reputable underwriters affect the sustainability of newly listed firms? evidence from South Korea, Sustainability, 2019, 11, 2665, 1-19. [CrossRef]
• Li, R.; Liu, W.; Liu, Y.; Tsai, S. IPO underpricing after the 2008 financial crisis: A study of the Chinese stock markets, Sustainability, 2018, 10, 2844, 1-13. [CrossRef]

Author Response File: Author Response.docx

This manuscript is a resubmission of an earlier submission. The following is a list of the peer review reports and author responses from that submission.