What Determines IPO Gross Spreads in Europe?

Abstract

This paper examines the behaviour of underwriting gross spreads in European IPO markets using a data set of 565 IPOs by European issuers in the period 1986 ± 99. Privatisations have lower gross spreads than other IPOs, other things remaining equal. Gross spreads on European listings by European issuers are significantly lower than on US listings by European issuers, except on the technology stockoriented EASDAQ and Frankfurt Neuer Markt exchanges. IPOs involving a US bulge bracket underwriter (for joint USaEurope listings) or bookbuilding are characterised by relatively higher spreads.

Differences between European and American IPO Markets

“…The Indonesian numbers for 1989-1994 are from Arosio et al (2000), where they cite Hanafi's (1997) working paper 'Efisiensi Emisi Sahan Baru di Bursa Efek Jakarta (1989-94) '. For 1995'. For -2001, the Indonesian numbers are from Ljungqvist and Yu (2003).…”

“…They conclude that the discretion that underwriters have with bookbuilding results in sub-optimal outcomes for issuers relative to using auction-like mechanisms. Torstila (2001Torstila ( , 2003 and document that the fees charged by underwriters for European IPOs are lower than those in the USA. The fees, known as the gross spread, are higher when bookbuilding is used than with auctions or fixed price offers.…”

What do investment banks charge to underwrite American Depositary Receipts?

“…For example, How and Yeo (2000) suggest that in the Australian market, underwriters systematically price their underwriting services according to a number of firmspecific variables, Torstila (2001) finds that European IPOs with a US bulge-bracket underwriter or bookbuilding pay relatively higher gross spreads, Torstila (2003) presents that the patterns of clustering in IPO gross spreads arise not only in the US, but also in many other markets with low gross spreads, Butler and Huang (2003) report that the gross spreads paid by Hong Kong IPOs and SEOs generally cluster at 2.5%, and Ljungqvist et al (2003) indicate that while a trade-off exists between gross spreads and underpricing, in contrast to the findings of Chen and Ritter (2000), non-US issuers raising $20-$80 million typically pay a gross spread of 7% when US banks and investors are involved.…”

Factors Influencing the Direct Costs of Property Trust Ipos

“…Such oversubscriptions also limit the need for after market price support activities. Torstila (2001) examined 565 IPOs during 1986 to 1999 by European issuers. He finds that the European offerings have a spread of around 3.75% (except for those technology oriented EUSDAQ or Neuer Markt exchanges which have spreads of around 6%).…”