Which Factors Affect Bond Underwriting Fees? The Role of Banking Relationships


  • The authors wish to thank Stefano Caselli, Stefano Gatti, Andrea Resti, Francesco Saita, Andrea Sironi, the participants at a Università Bocconi (Milan) seminar, at the 18th Australasian Finance and Banking Conference (Sidney), at the Journal of Banking and Finance 30th Anniversary Conference at Peking University (Beijing), at the EFMA 15th Annual Meeting (Madrid), and an anonymous referee for helpful comments. All errors remain those of the authors.


The question of which factors are relevant in determining bond underwriting fees is empirically investigated by analysing 2,202 bond issues completed by European firms during the 1993 – 2003 period. Four major results emerge from the analysis. First, the introduction of the single currency in 1999 has generated an increase in competition among banks, and, as a result, a reduction in underwriting fees. Second, a strong relationship with the issuer's main bank reduces the level of underwriting fees. Third, new issuers are charged with lower underwriter fees relative to firms that have completed issues without building any strong relationship with a bank. Fourth, higher reputation banks charge lower underwriting fees. The implications of these findings are also discussed.