Do Underwriters Compete in IPO Pricing?

We propose and implement a direct test of the hypothesis of oligopolistic competition in the U.S. underwriting market against the alternative of implicit collusion among underwriters. We construct a simple model of interaction between heterogeneous underwriters and heterogeneous firms and solve it u...

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Published in:Management Science 2018, Vol.64 (2), p.925
Main Authors: Lyandres, Evgeny, Fu, Fangjian, Li, Erica X.N
Format: Report
Language:English
Subjects:
Analysis
Competition (Economics)
Economic aspects
Going public (Securities)
Investment banks
Prices and rates
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Fu, Fangjian
Li, Erica X.N
description We propose and implement a direct test of the hypothesis of oligopolistic competition in the U.S. underwriting market against the alternative of implicit collusion among underwriters. We construct a simple model of interaction between heterogeneous underwriters and heterogeneous firms and solve it under two alternative assumptions: oligopolistic competition among underwriters and implicit collusion among them. The two solutions lead to different equilibrium relations between the compensation of underwriters of different quality on one hand and the time-varying demand for public incorporation on the other hand. Our empirical results, obtained using 39 years of initial public offering (IPO) data, are generally consistent with the implicit collusion hypothesis that banks, especially larger ones, seem to internalize the effects of their underwriting fees and IPO pricing on their rivals. History: Accepted by Neng Wang, finance. Supplemental Material: The Internet appendix is available at Keywords: IPOs * underwriters * competition * collusion
doi_str_mv 10.1287/mnsc.2016.2587.
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source 美国运筹学和管理学研究协会期刊（NSTL购买）; BSC - Ebsco (Business Source Ultimate); JSTOR
subjects Analysis
Competition (Economics)
Economic aspects
Going public (Securities)
Investment banks
Prices and rates
title Do Underwriters Compete in IPO Pricing?
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