The non-7% solution

Jacqueline L. Garner and Beverly B. Marshall

Journal of Banking & Finance, 2010, vol. 34, issue 7, 1664-1674

Abstract: While the vast majority of underwriters charge a gross spread of exactly 7%, as documented in Chen and Ritter (2000), more than a third charge something other than 7%. Among offerings of $50 million and below where underwriters charge the firm other than 7%, two-thirds of issuers pay more than published NASD1 compensation guidelines. When underwriters charge less than expected, they do not trade-off IPO compensation with underpricing. However, our evidence suggests a trade-off between IPO compensation and future SEO business among underwriters that charge something other than 7% and less than expected. Underwriters that overcharge may provide a signal to investors about future underperformance.

Keywords: Initial; public; offerings; Underwriting; compensation; Underpricing; Regulatory; guidelines (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (1)

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