The role of equity underwriters in shaping corporate disclosure

We find that the exogenous shock of the collapse of Lehman Brothers leads to significant increases in the disclosure of management earnings forecasts and voluntary 8-K items by equity underwriting clients of Lehman relative to clients of other underwriters of similar status. The increases in disclosure are more pronounced among Lehman clients with stronger underwriting relationships with Lehman or those that experienced more negative stock returns at the time of the collapse. Additional analyses reveal that, while Lehman clients experienced reductions in liquidity compared to non-Lehman clients after the collapse, this reduction is significantly attenuated among Lehman clients that increased the volume of their voluntary disclosures. Finally, we expand the sample to a larger set of underwriters and document that equity underwriter reputation changes are negatively associated with subsequent client disclosures, consistent with a substitution effect between client firms’ voluntary disclosures and the information roles played by high-quality underwriters. Overall, our results underscore the importance of the informational role of firms’ equity underwriters beyond the initial public offering (IPO) period.