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Private Equity Institute

Private Equity Institute


Why don't US issuers demand European fees for IPOs?

Howard Jones
Mark Abrahamson, Tim Jenkinson
We compare fees charged by investment banks for conducting IPOs in the U.S. and Europe. In recent years the “7% solution”, as documented by Chen and Ritter (2000), has become even more prevalent in the U.S., and is now the norm for IPOs raising up to $250m.
This paper uses evidence from a dataset of 27 European IPOs to analyse how investors bid and the factors that influence their allocations. We have the complete books for these deals - amounting to 5540 bids - and so can analyse directly how bids and allocations are related.
Despite the central importance of investors to all IPO theories, relatively little is known about their role in practice. In this paper we survey institutional investors about how they assess IPOs, what information they provide to the investment banking syndicate, and the factors they believe influence allocations.
Using detailed information from a large sample of investment banks we test the determinants of IPO allocations. This research draws on data gathered by the UK Financial Conduct Authority, and covers 220 IPOs managed from the UK raising around $160bn.
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