Ex-Ante Uncertainty and Gross Spreads for Small and Medium Sized Ipos

Abstract

This paper brings additional insights to numerous studies on the relationship between gross spreads, underpricing, and the underwriting industry. Using a sample of 200 French IPOs over the period 1996-2000, an average gross spread of 7.23% was found in an unconcentrated underwriting market structure. Gross spread is nonclustered and negatively related to the offer size. It is positively associated with the width of the price range, and the price revision in the pre-IPO period, suggesting that the issuer gets what he pays for. Based on a 2SLS regression, this paper provides new proof about tradeoffs between gross spreads and underpricing.

Keywords: Gross spreads, Width of the price range, Underpricing, Underwriter reputation

JEL Classification: G12