Determinants of Underwriting Fees by New Entrant Banks: Evidence from the Japanese IPO Underwriting Market

Abstract

This research investigates how banks expand market share after entering the underwriting market by examining the relation between commercial bank equity investments and underwriting fees. First, we find that not only bank underwriters with private information about issuers but also those without private information discount their fees, especially for smaller and riskier firms. This result is robust when using multiple firm-bank relationship measures or when changing the investing stage. This is consistent with the strategic discount view that predicts that bank underwriters discount fees to expand bank market shares in underwriting markets.