The IPO spread and conflicts of interests

The level of the IPO spread taken by the underwriter is a controversial issue. Some claim that the level is too high and attributes it to collusion between investment banks while others contend to the contrary. The paper examines the spread in the framework of conflicts of interests between the issuer, the underwriter and the informed investor. The argument is developed, based upon incentives for the underwriter. It is shown that the issuer should have the spread large enough for the underwriter to stay faithful to the issuer

Are Underwriter-Analysts More Informed? Scandinavian Evidence

Version updated 2007-10-18Excess returns for Scandinavian IPO-firm initial buy recommendations registered on the First Call database from underwriter analysts (informed analysts) for 1996-2002 were compared to those of non-underwriter analysts (uninformed analysts). Underwriter analysts recommendations outperformed non-underwriter analyst recommendations during the first year after publication, yielding 28 percent higher mean excess returns. Supporting the superior-information hypothesis and contradict earlier research, the result may be explained by two factors: (1) a lower regional competition between banks for winning corporate finance deals in Scandinavia than the regional competition between banks in the U.S.; and (2) an extended analyst coverage of IPO firms today than during earlier periods making it costlier for underwriter analysts to be caught with giving positively biased buy recommendations

The Tying of Lending and Equity Underwriting

This article examines the practice of tying,' which occurs when an underwriter lends to an issuer around the time of a public securities offering. We examine whether there are efficiencies from tying lending and underwriting which lead to benefits for issuers and underwriters. We find evidence consistent with tying occurring for issues when there are informational economies of scope from combining lending and underwriting. Firms benefit from tying through lower financing costs, as tied issuers receive lower underwriter fees on seasoned equity offerings and discounted loan yield spreads. These financing costs are significantly reduced for non-investment grade issuers, where informational economies of scope from combining lending with underwriting are likely to be large. These results are robust to matching methodology developed by Heckman, Ichimura, and Todd (1997, 1998). For underwriters, tying helps build relationships that augment an underwriter's expected revenues by increasing the probability of receiving both current and future business. Both commercial banks and investment banks tie lending and underwriting and offer price discounts, albeit in different ways, with commercial banks discounting loan yield spreads and investment banks offering reduced underwriter spreads.

Debt issue costs and issue characteristics in the Eurobond market.

This paper analyzes the issue costs and initial pricing of bonds in the international market. In particular, we investigate the determinants of three components of issue costs: underwriter fee, underwriter spread (the difference between the offering price and the guaranteed price to the issuer), and underpricing (the difference between the market price and the offering price). Total underwriter compensation increases with the bonds’ credit risk and maturity, but it is insignificantly related to issue size. Interestingly, underwriters appear to price some issue characteristics directly (by adjusting the fee) and other characteristics indirectly (by setting the guaranteed price). The two compensation components (fee and spread) are negatively related to each other. We provide evidence that this trade-off is consistent with income tax considerations, as well as with two-tier pricing by underwriters. We find no evidence of underpricing.International bonds; Issue costs; Underwriter compensation

Liquidity and Issue Costs in the Eurobond Market: the Effects of Market Integration.

We investigate and compare the issuance costs of Eurobonds before and after the completion of the Economic and Monetary Union (EMU) in 2002, and find that the introduction of the euro has significantly reduced the issue cost of euro-denominated bonds compared with bonds denominated in the legacy currencies. The reduction in issue cost was not due to a decrease in underwriter compensation, but rather to the elimination of underpricing (the difference between the market price after trading commences and the offering price). Underwriter fee has declined substantially after the EMU, but that decline was offset by an increase in the underwriter spread (the difference between the offering price and the guaranteed price to the issuer), leaving total underwriter compensation unchanged. The EMU is also associated with significant reductions in bond maturity and syndicate size, consistent with its expected effects on liquidity and issue costs in the Eurobond market.

The Initial Public Offering from a Tripartite Point of View

Existing literature on initial public offerings of a firm's stock has taken into analysis only two parties of the issuer, the underwriter, the informed investor, either by neglecting one party for simplification or uniting it with another one as if they pursue the unique interests by forming a coalition. In point of fact, the issuer, the underwriter, the informed investors are separate entities. They have often conflicting objectives each other and act in a different and independent manner to seek for profits of their own by making the most of their information. The present article explicitly introduces into enquiry the aspect of the tripartite conflicting interests of initial public offerings and investigates the effects.

Tanggung Jawab Underwriter dalam Penjaminan Emisi Dihubungkan dengan Undang Undang Nomor 8 Tahun 1995 Tentang Pasar Modal

Perjanjian Penjaminan emisi merupakan salah satu kegiatan dalam rangka penawaran umum yang dilakukan oleh emiten. Kegiatan ini melibatkan underwriter,dimana pihak penjamin emisi/ underwriter akan bekerja berdasarkan komitmen yang telah disepakati oleh emiten.Adakalanya dalam kegiatan ini pihak emiten tidak melibatkan penjamin emisi dalam menawarkan efeknya, dengan alasan jumlah yang ditawarkan sedikit, dan emiten tersebut menugaskan karyawannya.Masalah lain yang dapat timbul, yaitu apabila pihak underwriter/penjamin emisi tidak melaksanakan komitmennya. Menurut UUPM, Underwriter hanya membantu emiten untuk menjualkan efeknya dalam rangka penawaran umum berdasarkan komitmen yang disepakati, dan pernyataan pendaftaran emiten telah efektif