IPO placement risk and the number of co-managers

Previous studies show that co-managers mainly affect initial public offering (IPO) aftermarket activities. We investigate the role of co-managers in IPO pre-market activities. We argue that co-managers help reduce IPO placement risk and hypothesize that IPO issuers hire more co-managers when placement risk is higher. We find the number of co-managers is positively associated with three proxies for placement risk. IPOs with more price uncertainty and high-tech IPOs hire more co-managers, while IPOs in regulated industries hire fewer co-managers. We also find larger IPOs, recent IPOs, and IPOs with more reputable lead underwriters hire more co-managers.