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 avoid competing on fees because they "don't want to turn it into a commodity 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 securities, leading to economies of scale in the costs of issuing debt, equity, and hybrid securities. For initial public offerings~IPOs! of moderate size, however, no economies of scale are evident when one examines the commissions paid to investment bankers, also known as the gross spreads or underwriting 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 the United States for bond, convertible bond, and seasoned equity offerings do not show pronounced clustering on one number. 1

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We study industrial reactions to both the global financial crisis of 2008 and the COVID-19 pandemic. Although most industries in the U.S. suffered from the two events, the stock performance of most industries started to recover following the announcements of quantitative easing. Our results indicate that quantitative easing is effective in boosting investor confidence. We also find that the effect of quantitative easing in 2020 on stock performance is more significant for the industries that are more affected by the pandemic.

Previous studies have documented the reversal in the initial returns of REIT IPOs from overpricing in the 1980s to underpricing in the 1990s. We find that the gross spreads of REIT IPOs decreased significantly in the 1990s. In particular, there is a bimodal clustering for gross spreads at 6.5 and 7.0%. Moreover, in the 1980s around 94% of REIT IPOs had integer offer prices, most of which were priced at either $10 or $20. However, the proportion of integer offer prices decreased to 64% in the 1990s. Higher gross spreads, overpricing, and high frequency of integer offer prices for REIT IPOs in the 1980s are consistent with the marketing hypothesis that in the 1980s REIT IPOs were mainly marketed to less-informed individual investors. Our results explain the dynamic process employed by underwriters in the setting of gross spreads and the pricing of REIT IPOs as a new financial product in response to various structural changes in REITs. Copyright Springer Science + Business Media, LLC 2006REIT, IPO, Underpricing, Overpricing, Gross spread,

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