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 underwriter spreads in the US (Chen, H.-C., Ritter, J.R., 2000. The seven percent solution. Journal of Finance, in press.), we find that Australian underwriting fees are not clustered at one particular percentage. Using 282 underwritten industrial IPOs from 1980 to 1996, we find 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 options form part of the underwriter's compensation.