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Why Don't U.S. Issuers Demand European Fees for IPOs?

Authors

  • MARK ABRAHAMSON,

  • TIM JENKINSON,

  • HOWARD JONES

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    • Abrahamson, Jenkinson, and Jones are at the Saïd Business School, Oxford University. The authors thank the anonymous referee and the editor (Campbell Harvey) for many valuable comments and suggestions. We also thank the Centre for Corporate Reputation at the Saïd Business School, Oxford University for financial support for this research.

ABSTRACT

We compare fees charged by investment banks for conducting IPOs in the United States and Europe. In recent years, the “7% solution,” as documented by Chen and Ritter (2000), has become even more prevalent in the United States, and is now the norm for IPOs raising up to $250 million. The same banks dominate both markets, but European IPO fees are roughly three percentage points lower, are much more variable, and have been falling. We review explanations for the gap in spreads and find the evidence consistent with strategic pricing. U.S. issuers could have saved over $1 billion a year by paying European fees.

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