The Seven Percent Solution? An International Perspective On Underwriting Spreads

Alexander Ljungqvist () and William J Wilhelm

No 2736, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Non-US firms frequently pay a substantial premium to have a US bank lead their initial public offering of equity, even when the issuing firm is not seeking a listing on a US exchange. We provide evidence that this decision reflects an expectation that US banks deliver a higher quality bundle of underwriting services. Specifically, a non-US issuing firm that includes a US bank in its underwriting syndicate can expect to have its offering underpriced by 17.7% less than had it not included a US bank in the syndicate. Failure to account for the endogeneity of the decision to hire a US bank vastly understates the magnitude of the effect. This finding has direct implications for the claim that US bank spreads for domestic IPOs are above competitive levels.

Keywords: Initial public offerings; Investment banking; Underwriting spreads (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2001-03
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: The Seven Percent Solution? An International Perspective on Underwriting Spreads (1999)
Working Paper: The Seven Percent Solution? An International Perspective on Underwriting Spreads (1999)
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