Clustering of Percentage Gross Spreads and the Avoidance of Underwriter Switching
Purpose – Both issuing firms and underwriters shall benefit from their associations in underwriting contracts for seasoned equity offerings (SEOs). Issuing firms which are offered the clustered gross spreads paid by most issuers do not have strong incentives to switch away from their prior SEO underwriters, and these existing underwriters are able to maintain or gain greater market share. This study investigates how the clustering of percentage gross spreads affects the likelihood of underwriter switching.Design/methodology/Approach – Using the investment bank-underwritten SEOs in Hong Kong, we find that the percentage gross spreads of 40 percent of these SEOs are clustered at 2.5 percent. The seemingly unrelated bivariate probit model, Weibull survival mixed model, and trivariate probit model are applied to analyse this phenomenon.Findings – Our study provides first direct evidence that the clustering of percentage gross spreads lowers the likelihood of underwriter switching. Investment banks as underwriters can explicitly price underwriting contracts at a clustered level, more likely in periods of greater market volatility, and intentionally retain their client firms using pricing arrangements. Our finding and approach offer more direct and distinct support that the issuer-underwriter association can be relationship-based. Originality/value – While the clustering of fees is interpreted as a type of anticompetitive price sitting, we contribute to literature by providing new empirical evidence on why percentage gross spreads as a price dimension are clustered. On top of contract efficiency and collusion, our new evidence provides a third view for the clustering of gross spreads
Year of publication: |
2022
|
---|---|
Authors: | Lee, Ken Chin-Chong ; Too, Shaw Warn ; Ooi, K. S. |
Publisher: |
[S.l.] : SSRN |
Saved in:
freely available
Extent: | 1 Online-Ressource (34 p) |
---|---|
Type of publication: | Book / Working Paper |
Language: | English |
Notes: | In: International Journal of Managerial Finance Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments October 18, 2022 erstellt |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10014236245
Saved in favorites
Similar items by person
-
The market response of equity carve-out announcements in Malaysian stock market
Lee, Ken Chin-Chong, (2010)
-
Determinants of corporate disclosure on intellectual capital in Malaysian IPO prospectuses
Too, Shaw Warn, (2011)
-
IPO prospectus : exploring the expectation gap on intellectual capital information
Too, Shaw Warn, (2019)
- More ...