Investment Bank Compensation and IPO Pricing

38 Pages Posted: 15 Jan 2006

See all articles by Alexander W. Butler

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Hong Wan

State University of New York at Oswego

Date Written: July 19, 2005

Abstract

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

Butler, Alexander W. and Wan, Hong, Investment Bank Compensation and IPO Pricing (July 19, 2005). Available at SSRN: https://ssrn.com/abstract=875422 or http://dx.doi.org/10.2139/ssrn.875422

Alexander W. Butler (Contact Author)

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/

Hong Wan

State University of New York at Oswego ( email )

School of Business
Oswego, NY 13126
United States

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