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: Suggested Citation