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IPO Spreads: You Get What You Pay For

20 Pages Posted: 13 Jul 2000  

Royce de Rohan Barondes

University of Missouri-Columbia School of Law

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Gary C. Sanger

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

Date Written: June 15, 2000

Abstract

Chen and Ritter (2000) show that it is customary in the investment banking industry to charge a gross spread of seven percent for underwriting a moderately-sized firm-commitment initial public offering. However, in a nontrivial number of IPOs, the spread differs from this standard. We examine the effect on offering price of a negotiated spread that differs from seven percent. Negotiations that yield lower (higher) underwriting fees are associated with lower (higher) IPO offering prices on average, indicating marketing efforts expended by investment banks reflect the amounts paid to them.

Keywords: Investment banking, initial public offering, underwriter fees

JEL Classification: G24, G32

Suggested Citation

Barondes, Royce de Rohan and Butler, Alexander W. and Sanger, Gary C., IPO Spreads: You Get What You Pay For (June 15, 2000). Available at SSRN: https://ssrn.com/abstract=233146 or http://dx.doi.org/10.2139/ssrn.233146

Royce De Rohan Barondes

University of Missouri-Columbia School of Law ( email )

Missouri Avenue & Conley Avenue
Columbia, MO 65211
United States
573-882-1109 (Phone)
573-882-4984 (Fax)

HOME PAGE: http://www.missouri-k.com

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business ( email )

MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)

HOME PAGE: http://www.owlnet.rice.edu/~awbutler/

Gary C. Sanger (Contact Author)

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration ( email )

2163 CEBA
Baton Rouge, LA 70803-6308
United States
225-578-6353 (Phone)
225-578-6366 (Fax)

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