Jin Q. Jeon
Ferris State University
April 27, 2015
North American Journal of Economics and Finance, Forthcoming
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.