Shelf Registration And The Reduced Due Diligence Argument: Implications Of The Underwriter Certification And The Implicit Insurance Hypotheses

David W. Blackwell, M. Wayne Marr, Michael F. Spivey

Research output: Contribution to journalArticlepeer-review

70 Scopus citations

Abstract

Critics argue that shelf registration greatly reduces the ability of underwriters to perform adequate due diligence. This argument suggests underwriters will demand greater compensation for shelf issues compared to such traditional issues as an insurance premium for protection against potential litigation or loss of reputation caused by inadequate due diligence. Our findings suggest the presence of such a premium, that the premium is higher for firms with higher expected due diligence liabilities, and that underwriters perceive that shelf registration erodes due diligence and, subsequently, price the due diligence erosion accordingly. This pricing behavior is consistent with our findings that firms with higher expected due diligence liabilities are more likely to choose traditional registration.

Original languageEnglish
Pages (from-to)245-259
Number of pages15
JournalJournal of Financial and Quantitative Analysis
Volume25
Issue number2
DOIs
StatePublished - 1990

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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