The Journal of Financial and Quantitative Analysis
Vol. 43, No. 4 (Dec., 2008), pp. 975-1000
 

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Dongcheol Kim, Darius Palia and Anthony Saunders
http://www.jstor.org/stable/27647381



Abstract

This paper examines the effect of commercial bank entry on underwriting spreads for IPOs, SEOs, and debt issues using a long time series that spans 30 years, from 1975 to 2004. We find that, on average, commercial banks charge lower spreads of approximately 72 basis points for IPOs, 43 basis points for SEOs, and 14 basis points for debt over the entire sample period. The economic impact of commercial banks on lowering underwriting spreads is most significant when commercial banks were allowed to enter via Section 20 subsidiaries but persists beyond. Commercial bank entry into underwriting appears to have a procompetitive effect that lasts many years after their initial entry.

Keywords:

Insurance underwriting,
Debt,
Commercial banks,
Investment banking,
Underwriting firms,
Regression coefficients,
Statistical significance,
Quantitative analysis,
Initial public offerings,
Databases