Articlegreen2010

Are Initial Returns and Underwriting Spreads in Equity Issues Complements or Substitutes?

Dongcheol Kim · Darius N. Palia · Anthony Saunders

51 citations0/0 files storedFinancial Management

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

The objective of this paper is to analyze the joint behavior of underwriting spreads and initial returns on equity issues for a large sample of issues over a 21‐year period. Traditional empirical approaches to the determination of these direct and indirect issuing costs view them as independent. Using a three‐stage least squares approach, we find these costs to be positively and significantly related. In the case of seasoned equity offerings, our results are robust to replacing initial returns with the offer price discount. We also find that low quality issuers are charged higher underwriting spreads and initial returns when compared to high quality issuers.

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References

1990Econometric Models and Economic Forecasts 1992The investment opportunity set and corporate financing, dividend, and compensation policies 1986Investment banking, reputation, and the underpricing of initial public offerings 2002A Review of IPO Activity, Pricing, and Allocations 1990Initial Public Offerings and Underwriter Reputation 1991Venture Capitalist Certification in Initial Public Offerings 2004Why Has IPO Underpricing Changed Over Time 2002Why Don’t Issuers Get Upset About Leaving Money on the Table in IPOs?

Cited by

2014What all-cash companies tell us about IPOs and acquisitions 2011Equilibrium in the IPO Market

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