On Clustering of Issuing Costs for Initial Public Offerings
Asian Tax Journal Vol. 10 No. 4 (2009), pp. 203-223
Abstract
This paper examines issuing costs for initial public offering (IPO) stocks in Korea. Data are obtainable from registration documents on firms newly listed in Korea Exchange (KRX) of KOSPI and KOSDAQ from May 2004 to Dec. 2007. Issuing costs from the data are measured as total issuing costs, underwriting fees, gross spreads and underwriting spreads. Gross and Underwriting spreads are defined respectively with issuing costs over proceeds and underwriting fee over proceed. From the data, gross and underwriting spreads are on average respectively 6.20% and 5.35%. Averages of gross and underwriting spreads for the Put back option period are higher than those for non－Put back option periods respectively. The average 6.20% of gross spread in KRX is lower than that in US market but higher than those in Europe and Asia markets including Hong Kong market. Moreover, estimated standardized deviations of gross spreads and underwriting spreads are estimated respectively at 3.20% and 2.64%. The estimated numbers imply that there little exists the clustering of issuing costs in KRX for the period from May 2004 to Dec. 2007. However, the estimated standardized deviations of gross spreads and underwriting spreads for the period from July 2007 to Dec. 2007 is about 1%, which imply that there exists the clustering of issuing costs under the current underwriting rule. Additional analyses show that both of gross and underwriting spreads strongly depend on proceeds, but that the both spreads are neither affected by firm characteristics such as profitability nor done by underwriter reputations.
Keywords
- Initial Public Offering
- Issuing Costs
- Clustering of Issuing Costs