Do investment banks compete in IPOs ? : the advent of the ` 7 % plus contract a q
نویسندگان
چکیده
The large number of initial public o!erings (IPOs) with a 7% spread suggests either that investment bankers collude to pro"t from 7% IPOs or that the 7% contract is an e$cient innovation that better suits the IPO. My tests do not support the collusion theory. Low concentration and ease of entry characterize the IPO market. Moreover, the 7% spread is not abnormally pro"table, nor has its use been diminished by public awareness of collusion allegations. In support of the e$cient contract theory, banks 0304-405X/01/$ see front matter ( 2001 Elsevier Science S.A. All rights reserved. PII: S 0 3 0 4 4 0 5 X ( 0 0 ) 0 0 0 8 9 1 1Stories about the lawsuit and the investigation are found in `Allegations parallel new academic studya (Dow Jones News Service, November 4, 1998), `Coincidence or collusion? Two academics question the standard 7% IPO feea (Business Week, November 9, 1998, p. 163), `Lawsuit accuses 27 "rms of "xing fees for IPOsa (Wall Street Journal, November 11, 1998, C22), and `IPO "rms face probe of 7% fee }U.S. Antitrust group questions a standarda (Wall Street Journal May 3, 1999, C1). compete in pricing 7% IPOs on the basis of reputation, placement service, and underpricing. ( 2001 Elsevier Science S.A. All rights reserved. JEL classixcation: G32; G34
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