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Commercial bank entry into equity IPO underwriting: modern evidence

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  • Nancy Beneda
  • Ik-Whan Kwon

Abstract

This study examines the increased participation in underwriting of equity initial public offerings (IPOs) by section 20 subsidiaries of commercial banks. Using a four year test period (January 1995 to December 1998) this study finds that the average underpricing of equity IPOs decreased significantly from 23.0% to 17.4% after the decision to relax revenue constraints, on Section 20 activities of commercial banks, by the Federal Reserve Board on 3 August 1996. A further finding is that the decrease in underpricing is highly related to the increasing IPO market share of commercial banks. This study also finds that IPO underwriter fees did not increase after bank entry. The results of this study provides further evidence that increased participation of commercial banks in new issues markets has had a positive impact on competition and information dissemination in new issues markets.

Suggested Citation

  • Nancy Beneda & Ik-Whan Kwon, 2004. "Commercial bank entry into equity IPO underwriting: modern evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 14(6), pages 421-428.
    • Handle: RePEc:taf:apfiec:v:14:y:2004:i:6:p:421-428
    DOI: 10.1080/09603100410001673658
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    References listed on IDEAS

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    1. Carter, Richard B & Manaster, Steven, 1990. "Initial Public Offerings and Underwriter Reputation," Journal of Finance, American Finance Association, vol. 45(4), pages 1045-1067, September.
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    3. Amar Gande & Manju Puri & Anthony Saunders & Ingo Walter, 1995. "Bank underwriting of debt securities: modern evidence," Proceedings 481, Federal Reserve Bank of Chicago.
    4. Kanatas, George & Qi, Jianping, 1998. "Underwriting by Commercial Banks: Incentive Conflicts, Scope Economies, and Project Quality," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(1), pages 119-133, February.
    5. Gande, Amar, et al, 1997. "Bank Underwriting of Debt Securities: Modern Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 1175-1202.
    6. Megginson, William L & Weiss, Kathleen A, 1991. "Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
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    Cited by:

    1. Anna Vong, 2006. "Rate of subscription and after-market volatility in Hong Kong IPOs," Applied Financial Economics, Taylor & Francis Journals, vol. 16(16), pages 1217-1224.
    2. Beat Reber & Caroline Fong, 2006. "Explaining mispricing of initial public offerings in Singapore," Applied Financial Economics, Taylor & Francis Journals, vol. 16(18), pages 1339-1353.
    3. Anna Vong & N. Zhao, 2008. "An examination of IPO underpricing in the growth enterprise market of Hong Kong," Applied Financial Economics, Taylor & Francis Journals, vol. 18(19), pages 1539-1547.
    4. Michael Highfield & Patrick Lach & Larry White, 2008. "The quiet period is making noise again," Applied Financial Economics, Taylor & Francis Journals, vol. 18(17), pages 1363-1378.

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