The Impact of Hiring a Reputable Underwriter on the Information Environment of Cross-Listed Firms

In this paper I examine how the information environment of cross-listed firms is affected by a mechanism of reputational bonding: the choice of a reputable underwriter to sponsor an equity offering. Using a sample of cross-listed firms from 1980 to 2004, I find that those that raise equity and hire a reputable underwriter, within three years after the event, observe higher analyst coverage and more accurate earnings forecasts. Empirical evidence shows that these improvements in the firm's information environment are positively related to firm value. More importantly, the improved accuracy of firms sponsored by top underwriters has an additional positive impact on their Tobin's q. Overall, the results of this paper show that top underwriters play an important monitoring role, via their impact on firm's information environment