Are There Economies of Scale in Underwriting Fees? Evidence of Rising External Financing Costs

Posted: 1 Mar 2000

See all articles by Oya Altinkilic

Oya Altinkilic

University of Maryland - Robert H. Smith School of Business

Robert S. Hansen

Tulane University - A.B. Freeman School of Business

Abstract

This study examines the behavior of spreads paid in firm underwritten seasoned common stock offerings and straight bond offerings. Estimates indicate that up to 85% of the spread is variable cost and that the marginal spread is rising. Further, offerings that are likely to require greater underwriting services encounter higher marginal spreads. These findings are consistent with there being a family of U-shaped spreads, with lower quality offerings priced on higher spreads, unlike the economies of scale view of spreads. They agree with the views that underwriters provide valuable services and that the marginal cost of external finance is rising.

JEL Classification: G32, G33

Suggested Citation

Altinkilic, Oya and Hansen, Robert S., Are There Economies of Scale in Underwriting Fees? Evidence of Rising External Financing Costs. Available at SSRN: https://ssrn.com/abstract=181996

Oya Altinkilic

University of Maryland - Robert H. Smith School of Business ( email )

4426 Van Munching Hall
Department of Finance
College Park, MD 20742
United States

Robert S. Hansen (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

Goldring/Woldenberg Hall
7 McAllister Blvd.
New Orleans, LA 70118
United States
504-865-5624 (Phone)

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