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The Pricing of Underwriting Services in the Australian Capital Market

Recent media releases have placed enormous strains on the credibility of the underwriting industry. It has been alleged that underwriters in the US and UK collude and fix underwriting fees. In contrast to recent evidence on the underwriting spread in the US (Chen and Ritter, 2000), we find that the Australian underwriting fee is not clustered at one particular percentage. Using 282 underwritten industrial IPOs from 1980 to 1996, our results show that underwriters systematically price their services according to firm-specific variables such as the offer size, the subscription period of the issue, the retained ownership after the IPO, the offer price, and whether underwriters receive options as part of their compensation.