Are IPO underwriters paid for the services they provide?
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 7 September 2015
Abstract
Purpose
The purpose of this paper is to relate the fees paid to IPO underwriters to the nature and quality of the services they provide.
Design/methodology/approach
Controlling for the characteristics of the firm going public, the risk associated with the offering, and the reputation of the underwriter, the authors study on a sample of Italian IPOs whether a formal commitment by underwriters to provide ancillary services allows them to charge higher fees.
Findings
The authors document that asking underwriters to stabilize stock price is costly to the issuer, while to support liquidity is not. The authors’ also show that underwriters stabilize IPOs that really need it, whereas the provision of liquidity support does not seem to be always aligned with the issuer’s interest.
Originality/value
Investigating the Italian underwriting market is instructive for two main reasons. First, the institutional setting in IPOs is similar to most continental European countries, but significantly different from the US market. For instance, allocation policies in US IPOs are discretionary for both retail and institutional investors, while in Europe shares cannot be discretionarily allocated to retail investors. Second, the Italian market offers the opportunity to study the going-public decision outside the typical Anglo-Saxon financial systems. This is of interest because while both the UK and the USA have well-developed equity markets and a related industry of financial intermediation centered on providing equity, our analysis sheds light on financial intermediation of IPOs in a bank-centered system.
Keywords
Acknowledgements
The authors are grateful to an anonymous reviewer, Wolfgang Aussenegg, Wolfgang Bessler, Sinan Gokkaya, Stefano Paleari, Jay Ritter, and to participants in the FMA meetings and in the EFMA meetings and at seminars at the Italian Stock Exchange for helpful comments. The authors are thankful to Fabio Braga, Enrico Pellizzoni, and Borsa Italiana for providing data and useful insights.
Citation
Meoli, M., Signori, A. and Vismara, S. (2015), "Are IPO underwriters paid for the services they provide?", International Journal of Managerial Finance, Vol. 11 No. 4, pp. 414-437. https://doi.org/10.1108/IJMF-05-2014-0073
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited