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The Seven Percent Solution
Abstract
Gross spreads received by underwriters on initial public offerings (IPOs) in the United States are much higher than in other countries. Furthermore, in recent years more than 90 percent of deals raising $20–80 million have spreads of exactly seven percent, three times the proportion of a decade earlier. Investment bankers readily admit that the IPO business is very profitable, and that they avoid competing on fees because they ‘don't want to turn it into a commodity business.’ We examine several features of the IPO underwriting business that result in a market structure where spreads are high.
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Citations
Cited by
Grandstanding, certification and the underpricing of venture capital backed IPOs
Lee, P. M., & Wahal, S. (2004) · Journal of Financial Economics · doi:10.1016/j.jfineco.2003.09.003 · Cited by 638
The Information Content of IPO Prospectuses
Hanley, K. W., & Hoberg, G. (2010) · Review of Financial Studies · doi:10.1093/rfs/hhq024 · Cited by 594
PÁSTOR, Ľ., & VERONESI, P. (2005) · The Journal of Finance · doi:10.1111/j.1540-6261.2005.00778.x · Cited by 420
CORWIN, S. A., & SCHULTZ, P. (2005) · The Journal of Finance · doi:10.1111/j.1540-6261.2005.00735.x · Cited by 412
The Role of Lockups in Initial Public Offerings
Brav, A., & Gompers, P. A. (2003) · Review of Financial Studies · doi:10.1093/rfs/16.1.0001 · Cited by 397
Metadata
- Authors
- Chen, H., & Ritter, J. R.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 2000-06
- Volume
- 55
- Issue
- 3
- Pages
- 1105-1131
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W2158027494
- Cited by
- 766
- References
- 0
- FWCI
- 202.04
- Type
- journal article
- Language
- en
- Open access
- closed
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- Chen, H., & Ritter, J. R. (2000). The Seven Percent Solution. The Journal of Finance. https://doi.org/10.1111/0022-1082.00242
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
