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The non-7% solution

  • Garner, Jacqueline L.
  • Marshall, Beverly B.
Registered author(s):

    While the vast majority of underwriters charge a gross spread of exactly 7%, as documented in Chen and Ritter (2000), more than a third charge something other than 7%. Among offerings of $50 million and below where underwriters charge the firm other than 7%, two-thirds of issuers pay more than published NASD1 compensation guidelines. When underwriters charge less than expected, they do not trade-off IPO compensation with underpricing. However, our evidence suggests a trade-off between IPO compensation and future SEO business among underwriters that charge something other than 7% and less than expected. Underwriters that overcharge may provide a signal to investors about future underperformance.

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    File URL: http://www.sciencedirect.com/science/article/B6VCY-4YMPX75-1/2/54c7dbcb936443524d5baef8e989f561
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 34 (2010)
    Issue (Month): 7 (July)
    Pages: 1664-1674

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    Handle: RePEc:eee:jbfina:v:34:y:2010:i:7:p:1664-1674
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