Equity Underwriting Spreads at Commercial Bank Holding Companies and Investment Banks

41 Pages Posted: 30 Mar 2001

See all articles by Ivan C. Roten

Ivan C. Roten

Appalachian State University - John A. Walker College of Business

Donald J. Mullineaux

University of Kentucky - Gatton College of Business and Economics

Date Written: December 2000

Abstract

This paper focuses on relative equity issue costs at commercial bank-affiliated and investment bank underwriters over the period 1995-99. We estimate models for the gross spreads associated with both IPOs and SEOs, but disaggregate the sample by type of underwriter. Our methods are driven by theoretical arguments that bank-related underwriters could have certain competitive advantages relative to investment banks in securities underwriting. We find some distinctive differences among the factors influencing gross spreads at the commercial bank-affiliated underwriters relative to investment banks, primarily in the set of variables we identify with the certification role of underwriters. The IPO gross spreads at Section 20 underwriters are less sensitive to scale economies, reputation, uncertainty, third-party monitoring, and pricing performance. The differences are consistent with theories that suggest that commercial bank organizations possess unique technologies for managing information and/or that Section 20 firms can exploit diversification benefits from BHC affiliation. This interpretation is strengthened by the lack of significant differences in SEO underwriter spreads. The relative advantage that Section 20s possess in monitoring capabilities or technologies for managing information problems appear to be irrelevant when information is readily and cheaply available. The observed results are also consistent with Hansen's (2000) argument that underwriters compete for business on several different dimensions.

Keywords: Equity, underwriting, Section 20, investment banks, IPO

JEL Classification: G0, G2

Suggested Citation

Roten, Ivan C. and Mullineaux, Donald J., Equity Underwriting Spreads at Commercial Bank Holding Companies and Investment Banks (December 2000). Available at SSRN: https://ssrn.com/abstract=261736 or http://dx.doi.org/10.2139/ssrn.261736

Ivan C. Roten

Appalachian State University - John A. Walker College of Business ( email )

Department of Finance, Banking, and Insurance 3066 Raley Hall
Boone, NC 28608
United States
828.262.6943 (Phone)
828.262.6612 (Fax)

Donald J. Mullineaux (Contact Author)

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-2890 (Phone)
859-257-9688 (Fax)

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