A New Measure for Heated Negotiation in the IPO Syndicate

Jin Q. Jeon

Dongguk University

Cheolwoo Lee

Ferris State University

April 27, 2015

North American Journal of Economics and Finance, Forthcoming

Abstract:

This paper develops novel measures for heated negotiation within the IPO syndicate –– i) between the lead underwriter and co-managers and ii) among co-managers. We find that the inferior bargaining position for the lead underwriter and superior bargaining power for co-managers with initial low compensation for co-managers lead to heated negotiation. Our results indicate that underwriters do not negotiate their shares of compensation based on their pre-commitment and actual provision of key underwriter services. Rather, it appears that heated negotiation materializes as co-managers resist against the lead underwriter’s initial unfair profit sharing design.

A New Measure for Heated Negotiation in the IPO Syndicate

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