Does the Gross Spread Split Compensate Lead Underwriters for Analyst Coverage?

Accounting and Finance Research, Vol. 1, No. 2, 36-58, 2012

Posted: 28 Jun 2015

Date Written: November 1, 2012

Abstract

Since underpricing and gross spread are the two main revenue sources for investment banks in public offerings and Cliff and Denis (2004) find that underpricing is used to compensate analyst coverage, this paper examines the IPO syndicate data to investigate whether the gross spread compensates investment banks for analyst coverage. We find evidence to support the premise that the gross spread is used to compensate lead underwriters for analyst coverage when the lead underwriter has a strong bargaining power to advantageously shape up the compensation structure. After accounting for several critical issues, our results remain unchanged.

Keywords: Gross spread, Analyst coverage, Underwriter compensation, IPO, Fixed economics

JEL Classification: G24

Suggested Citation

Lee, Cheolwoo, Does the Gross Spread Split Compensate Lead Underwriters for Analyst Coverage? (November 1, 2012). Accounting and Finance Research, Vol. 1, No. 2, 36-58, 2012, Available at SSRN: https://ssrn.com/abstract=2623988

Cheolwoo Lee (Contact Author)

Ferris State University ( email )

119 South State Street, BUS 366
Big Rapids, MI 49307
United States

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