Underwriting relationships: Information production costs, underwriting fees, and first mover advantage

Authors: Ang, James¹; Zhang, Shaojun²

Source: Review of Quantitative Finance and Accounting, Volume 27, Number 2, September 2006 , pp. 205-229(25)

Publisher: Springer

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Abstract:

We study underwriting relationships in the floating rate debt market, where many issuers have a large number of offerings. We find that frequent issuers maintain close relationship with only three to five underwriters and pay significantly less underwriting fees than infrequent issuers. The findings are consistent with the notion that starting an underwriting relationship requires expenses for information production. We also find that an issuer's first underwriter has a cost advantage over later-comers in competing for the issuer's business. As a result, the first underwriter wins a larger share of the issuer's business.

Keywords: Underwriting relationship; Floating rate debt; Underwriting fees; Information production costs; First mover advantage

Document Type: Research article

DOI: http://dx.doi.org/10.1007/s11156-006-8796-1

Affiliations: 1: Email: jang@cob.fsu.edu 2: Email: asjzhang@ntu.edu.sg

Publication date: 2006-09-01