Investment Bank Compensation and IPO Pricing
38 Pages Posted: 15 Jan 2006
Date Written: July 19, 2005
Using a large sample of initial public offerings (IPOs) from 1985-2002, we study how the compensation of the investment banks participating in an IPO affects the pricing of the offer. We show that shifting investment bank compensation toward the selling concession (away from management fees and/or underwriting fees) has a significant impact on the offer price of the IPO. That is, redistributing compensation toward the investment banks in the selling group increases the average price revision from the initial filing range. This result is robust to a number of controls and endogeneity concerns, and is statistically and economically significant.
Keywords: IPO, investment bank, selling concession
JEL Classification: G24
Suggested Citation: Suggested Citation