FIN-03-004 |
NYU Stern School of Business |
January 2003
Dongcheol Kim, Darius Palia and Anthony Saunders
ABSTRACT
This paper is the first to look at the long-run (30-year) behavior of underwriting spreads in the
markets for corporate equity and debt. Specifically, we analyze the determinants of underwriting
spreads on corporate bond issues, secondary equity offerings and initial public offerings over the
period 1970-2000. We explain the time-varying cross-sectional behavior of these spreads by
analyzing three sets of variables or factors: macro (systematic) factors, investment banking market
structure factors and issuer specific characteristics. We also analyze the relationship between the
direct costs (underwriting spreads) and indirect costs (underpricing) of new issues. Among our many
results we find an apparent decline in spreads over time, an increased clustering in spreads for both
IPOs and SEOs, the dominance of issuer- specific characteristics in explaining spreads, and a
relatively weak linkeage between the direct and indirect costs of issuance.
Dongcheol Kim
Institution: Associate Professor of Finance and Economics, Rutgers Business School
Darius Palia
Institution: Associate Professor of Finance, Rutgers Business School and Adjunct Associate Professor, Stern School of Business, New York University
Telephone: 212-998-0302
Fax: 212-995-4233
Email: dpalia@stern.nyu.edu
Home Page: http://www.stern.nyu.edu/~dpalia
Anthony Saunders
Institution: John M. Schiff, Professor of Finance, Leonard N. Stern School of Business, New York University
Telephone: 212-998-0711
Fax: 212-995-4233
Email: asaunder@stern.nyu.edu
Home Page: http://www.stern.nyu.edu/~asaunder
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