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The Impact of Commercial Banks on Underwriting Spreads: Evidence from Three Decades

Published online by Cambridge University Press:  06 April 2009

Dongcheol Kim ,
Darius Palia  and
Anthony Saunders
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Abstract

This paper examines the effect of commercial bank entry on underwriting spreads for IPOs, SEOs, and debt issues using a long time series that spans 30 years, from 1975 to 2004. We find that, on average, commercial banks charge lower spreads of approximately 72 basis points for IPOs, 43 basis points for SEOs, and 14 basis points for debt over the entire sample period. The economic impact of commercial banks on lowering underwriting spreads is most significant when commercial banks were allowed to enter via Section 20 subsidiaries but persists beyond. Commercial bank entry into underwriting appears to have a procompetitive effect that lasts many years after their initial entry.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 43 , Issue 4 , December 2008 , pp. 975 - 1000
Copyright
Copyright © School of Business Administration, University of Washington 2008

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