Determinants of underwriting fees by new entrant banks: Evidence from the Japanese IPO underwriting market

We investigate how banks expand when they are allowed to enter the underwriting market. To do so, we examine the relation between the commercial bank’s equity investment and underwriting fee. First, we find that not only bank underwriters with private information about the issuer, but also those without private information discount their fees, especially for small and riskier firms. This result is still robust when using the multiple firm-bank relationship measurements or changing the investing stage. This result is consistent with the strategic discount view that predicts that the bank underwriter discounts its fee in order to expand the bank’s market share in the underwriting market.