Journal of Financial Economics Vol. 59 No. 3 2001
Do investment banks compete in IPOs?: the advent of the “7% plus contract”
Abstract
The large number of initial public offerings (IPOs) with a 7% spread suggests either that investment bankers collude to profit from 7% IPOs or that the 7% contract is an efficient 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 profitable, nor has its use been diminished by public awareness of collusion allegations. In support of the efficient contract theory, banks compete in pricing 7% IPOs on the basis of reputation, placement service, and underpricing.
- DOI
- 10.1016/s0304-405x(00)00089-1
- Volume
- 59
- Issue
- 3
- Pages
- 313-346
- Sources
- crossref bibtex:phds-export.bib openalex