Publication Type
Journal Article
Version
submittedVersion
Publication Date
2-2018
Abstract
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 heterogenous underwriters and heterogenous 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 IPO data, are generally consistent with the implicit collusion hypothesis – banks, especially larger ones, seem to internalize the effects of their underwriting fees and IPO pricing on their rivals.
Keywords
IPOs, underwriters, competition, collusion
Discipline
Business | Corporate Finance | Finance and Financial Management
Research Areas
Finance
Publication
Management Science
Volume
64
Issue
2
First Page
925
Last Page
954
ISSN
0025-1909
Identifier
10.1287/mnsc.2016.2587
Publisher
INFORMS
Citation
LYANDRES, Evgeny; FU, Fangjian; and LI, Erica X. N..
Do underwriters compete in IPO pricing?. (2018). Management Science. 64, (2), 925-954.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/4425
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1287/mnsc.2016.2587