Loughran and Ritter (2004) introduce the analyst lust hypothesis to describe IPO underpricing where influential analysts are engaged to take the firm public. Their spinning hypothesis describes the 1990s practice of providing side payments to individuals charged with finding an underwriter to manage the IPO process. Both hypotheses create incentives to seek underwriters with a reputation for severe underpricing. We verified the Loughran and Ritter hypotheses and tested both the importance of analyst coverage (Cliff & Denis, 2004) and the influence of VC versus non-VC-backed structures on control issues, whether the lawsuits were dismissed in whole or in part as well as the size of the settlements. We examined both the VC-backed success hypothesis (Jain & Kini, 2000) and the common wisdom of “sue the party with the deepest pockets.”
Griffiths, Mark; Kickul, Jill; and Post, Colleen
"THE PRICE OF LUST: THE CASE OF IPO LAWSUITS AGAINST VC-BACKED FIRMS (SUMMARY),"
Frontiers of Entrepreneurship Research: Vol. 28
, Article 7.
Available at: http://digitalknowledge.babson.edu/fer/vol28/iss3/7