【毕业设计外文翻译用----金融市场微观结构外文文献】chen-ritter00seven-jf.pdf

THE JOURNAL OF FINANCE • VOL. LV, NO. 3 • JUNE 2000
The Seven Percent Solution
HSUAN-CHI CHEN and JAY R. RITTER*
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 -
peting on fees because they “don’t want to turn it into modity business.” We
examine several features of the IPO underwriting business that result in a market
structure where spreads are high.
IT IS WIDELY ACCEPTED THAT there are fixed costs associated with issuing se-
curities, leading to economies of scale in the costs of issuing debt, equity, and
hybrid securities. For initial public offerings ~IPOs! of moderate size, how-
ever, no economies of scale are evident when one examines missions
paid to investment bankers, also known as the gross spreads or underwrit-
ing discounts. In the period from 1995 to 1998, for the 1,111 IPOs raising
between $20 and $80 million in the United States, more than 90 percent of
issuers paid gross spreads of exactly seven percent.
This clustering of spreads at seven percent has not always been present.
There is much more clustering at seven percent now than a decade ago,
although the average spread on IPOs has not changed during this period. In
the 1985 to 1987 period, only about one-quarter of moderate size IPOs had
spreads of exactly seven percent, in contrast to the more than 90 percent
incidence that has prevailed in recent years. We offer a few ideas about this
pattern, but the convergence remains puzzling.
Spreads on IPOs outside of the United States, such as in Australia, Japan,
Hong Kong, or Europe, are approximately half the level of those in the United
States. Spreads within