Pinghsun Huang

On the Uniformity of Investment Banking Spreads: The Seven Percent Solution is Not Unique

The clustering of underwriting spreads for initial public offerings at 7% in the U.S. is well known. We investigate investment bank gross spreads for Hong Kong IPOs during 1991 /2000 and find pronounced clustering*/nearly 94% have spreads of exactly 2.5%. This clustering is invariant to issue size and decreases through time. We find that SEO spreads cluster as well*/ at 2.0 and 2.5%. We document institutional features that contribute to the low level of spreads, and provide preliminary evidence that the recent arrival of the book-building process for Hong Kong IPOs has increased the level and decreased the clustering of IPO gross spreads. # 2003 Elsevier Science B.V. All rights reserved. JEL classification: G24; L10