Acknowledgments: This paper was supported by a 2010 Research Grant from Kangwon National University. The paper has also benefited from useful conversations with Seong-Hoon Kim and Lee-Seok Hwang. We thank Myung-Jig Kim (Editor) and Chang-Soo Kim (Editor) for their helpful suggestions.
Syndicate Structure in Initial Public Offerings: Syndicate Formation, Share Allocation, Fee Distribution, and Underpricing in the Korean Market*
Article first published online: 9 FEB 2012
© 2012 Korean Securities Association
Asia-Pacific Journal of Financial Studies
Volume 41, Issue 1, pages 32–58, February 2012
How to Cite
Lee, J.-R. and Cho, Y.-G. (2012), Syndicate Structure in Initial Public Offerings: Syndicate Formation, Share Allocation, Fee Distribution, and Underpricing in the Korean Market. Asia-Pacific Journal of Financial Studies, 41: 32–58. doi: 10.1111/j.2041-6156.2011.01064.x
- Issue published online: 9 FEB 2012
- Article first published online: 9 FEB 2012
- Received 7 June 2010; Accepted 20 November 2011
- Initial public offering;
- Share allocation;
- Fee distribution;
- Underpricing of IPO
Using unique information obtained from Korea regarding syndicates’ underwriting of initial public offerings (IPOs), this paper examines how syndicates are formed into syndicate structures, including fee distributions among syndicate members, and also investigates how they affect the IPO process, such as the underpricing of IPOs. Reciprocal participation among syndicates affects the formation of syndicates, and the formation strongly depends on the regulation of underwriting. Approximately 30% of the sample, which was hand-collected, is managed by sole syndicates in that the book manager of the IPO underwrites the entire shares and takes out the overall underwriting fee. The remaining 70% is mainly controlled by the book managers in that over 90% of the shares for an IPO are allocated to the book managers, and over 90% of the underwriting fees are distributed to the book managers. The syndicate structure of an IPO has little effect on underpricing, which strongly depends on underwriting regulation, market conditions during the IPO process, and price adjustment after book building.