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An Explanation of Underwriting Spread Differentials on Complex Securities

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  • Michael W. Becker
  • Michael S. Long

Abstract

Underwriting costs for complex securities can vary with their special tax treatment, conversion features, bond put options, and structural complexity. Securities with one or more of these features are more difficult to value. These complexities must be communicated to prospective investors by the underwriter. Empirical tests demonstrate that the increased information costs result in increased underwriting spreads, while included investor-option features results in decreased underwriting spreads.

Suggested Citation

  • Michael W. Becker & Michael S. Long, 1997. "An Explanation of Underwriting Spread Differentials on Complex Securities," Financial Management, Financial Management Association, vol. 26(2), Summer.
    • Handle: RePEc:fma:fmanag:becker97
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    References listed on IDEAS

    as
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    Cited by:

    1. Kenneth Carow, 1999. "Evidence of Early-Mover Advantages in Underwriting Spreads," Journal of Financial Services Research, Springer;Western Finance Association, vol. 15(1), pages 37-55, February.
    2. Yeoman, John C., 2001. "The optimal spread and offering price for underwritten securities," Journal of Financial Economics, Elsevier, vol. 62(1), pages 169-198, October.

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