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Are Initial Returns and Underwriting Spreads in Equity Issues Complements or Substitutes?

Authors
Kim, DongcheolPalia, DariusSaunders, Anthony
Issue Date
2010
Publisher
FINANCIAL MANAGEMENT ASSOC
Keywords
Underwriting spread; equity issues; initial returns
Citation
FINANCIAL MANAGEMENT, v.39, no.4, pp.1403 - 1423
Indexed
SSCI
AHCI
SCOPUS
Journal Title
FINANCIAL MANAGEMENT
Volume
39
Number
4
Start Page
1403
End Page
1423
URI
https://scholar.korea.ac.kr/handle/2021.sw.korea/118503
DOI
10.1111/j.1755-053X.2010.01117.x
ISSN
0046-3892
Abstract
The objective of this paper is to analyze the joint behavior of underwriting spreads and initial returns on equity issues for a large sample of issues over a 21-year period. Traditional empirical approaches to the determination of these direct and indirect issuing costs view them as independent. Using a three-stage least squares approach, we find these costs to be positively and significantly related. In the case of seasoned equity offerings, our results are robust to replacing initial returns with the offer price discount. We also find that low quality issuers are charged higher underwriting spreads and initial returns when compared to high quality issuers.
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Korea University Business School > Department of Business Administration > 1. Journal Articles

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