Abstract
We examine the use of warrants as part of the brokers’ compensation package in a regulatory environment that is very different from that of the US. Our results show that, though warrant-issuing UK IPO firms are riskier, they are underwritten by reputable brokers. Interestingly, warrant issuers do not minimise their total costs of going public. They incur an underpricing and a total broker compensation of 23.3% and 5.6% respectively. These costs would have been 5.4% and 3.4% had warrants not been used. The results also show that, on average, brokers enhance their underwriting fees by about 75% as a result of the warrants being part of the compensation package. Our findings suggest that underwriters operating in an environment with no regulatory constraints regarding the use of warrants appear to misuse their monopoly power and overcharge IPO firms for their services.
| Original language | English |
|---|---|
| Title of host publication | host publication |
| Pages | 1-36 |
| Number of pages | 36 |
| DOIs | |
| Publication status | Published - Jan 2013 |
| Event | Financial Conduct Authority (Former Financial Services Authority). The Regulator invited us to present the paper to their research staff - London. Duration: 8 Apr 2013 → 8 Apr 2013 |
Conference
| Conference | Financial Conduct Authority (Former Financial Services Authority). The Regulator invited us to present the paper to their research staff |
|---|---|
| City | London. |
| Period | 8/04/13 → 8/04/13 |
Keywords
- The compensation of underwriters (Brokers) of IPOs in the UK Alternatiave Investment Market