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Underwriter competition and gross spreads in the eurobond market

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Author Info
Michael G. Kollo () (Financial Markets Group, London School of Economics, London, WC2A 2AE, United Kingdom)
Abstract

We investigate the competitive landscape of underwriting services in the Eurobond market including the choice of underwriter and underwriter gross spread. We find a significant but declining association between the home market of the Eurobond’s currency of denomination and that of the lead underwriter. These bonds underwritten by underwriters ‘local’ to the currency also carry significantly lower underwriter gross spreads vis-à-vis other Eurobonds. The amalgamation of the European currencies into the Euro resulted in a significant shift in the competitive landscape for underwriting services. We find a significant portion of market shares shifted from the ‘local’ European underwriters to non-‘local’ U.S. underwriters with the introduction of the Euro. Moreover, the volume of new issues rose and the gross underwriter spread declined significantly. Our empirical results suggest that Eurozone underwriters responded to the increased entry of U.S. and other Eurozone underwriters with aggressive discounting of the underwriter gross spread.

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Paper provided by European Central Bank in its series Working Paper Series with number 550.

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Length: 54 pages
Date of creation: Nov 2005
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Handle: RePEc:ecb:ecbwps:20050550

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Related research
Keywords: Underwriter competition; Underwriter spreads; Eurobond market.;

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Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Robert N. McCauley & William R. White, 1997. "The Euro and European financial markets," BIS Working Papers 41, Bank for International Settlements. [Downloadable!]
  2. Carsten Detken & Philipp Hartmann, 2000. "The Euro and International Capital Markets," EUI-RSCAS Working Papers 27, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS). [Downloadable!]
    Other versions:
  3. Gande, Amar, et al, 1997. "Bank Underwriting of Debt Securities: Modern Evidence," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 10(4), pages 1175-1202.
  4. Roden, Peyton Foster & Bassler, John, 1996. "Effect of Underwriter Prestige on the Interest Cost of Municipal Bond Offerings," The Financial Review, Eastern Finance Association, vol. 31(3), pages 641-66, August.
  5. Megginson, William L & Weiss, Kathleen A, 1991. " Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July. [Downloadable!] (restricted)
  6. Jean Dermine, 1996. "European Banking with a Single Currency," Center for Financial Institutions Working Papers 96-54, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  7. Krigman, Laurie & Shaw, Wayne H. & Womack, Kent L., 2001. "Why do firms switch underwriters?," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 245-284, May. [Downloadable!] (restricted)
  8. João A. C. Santos & Kostas Tsatsaronis, 2003. "The cost of barriers to entry: evidence from the market for corporate euro bond underwriting," BIS Working Papers 134, Bank for International Settlements. [Downloadable!]
  9. Chemmanur, Thomas J & Fulghieri, Paolo, 1994. " Investment Bank Reputation, Information Production, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 49(1), pages 57-79, March. [Downloadable!] (restricted)
  10. Steven Drucker & Manju Puri, 2004. "The Tying of Lending and Equity Underwriting," NBER Working Papers 10491, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Gabriele Galati & Kostas Tsatsaronis, 2001. "The impact of the euro on Europe's financial markets," BIS Working Papers 100, Bank for International Settlements. [Downloadable!]
  12. Neil Esho & Ian Sharpe, 2004. "Eurobond Underwriter Spreads," FMG Discussion Papers dp503, Financial Markets Group. [Downloadable!] (restricted)
    Other versions:
  13. Puri, Manju, 1999. "Commercial banks as underwriters: implications for the going public process," Journal of Financial Economics, Elsevier, vol. 54(2), pages 133-163, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jose A. Lopez & Mark M. Spiegel, 2006. "Foreign bank lending and bond underwriting in Japan during the lost decade," Working Paper Series 2006-45, Federal Reserve Bank of San Francisco. [Downloadable!]
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