The Seven Percent Solution? An International Perspective on Underwriting Spreads

Alexander Ljungqvist () and William J. Wilhelm ()

OFRC Working Papers Series from Oxford Financial Research Centre

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

Date: 1999
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Related works:
Working Paper: The Seven Percent Solution? An International Perspective On Underwriting Spreads (2001)
Working Paper: The Seven Percent Solution? An International Perspective on Underwriting Spreads (1999)
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