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.