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Thursday, 23 January 2020

Professor Brahim Saadouni Inaugural Lecture Incentive Fees: Can They Bond Underwriters and IPO Issuers?

The compensation of underwriters forms a significant part of the direct costs for any initial public offering (IPO) company seeking listing on a stock exchange. The compensation package can be (i) a percentage (gross spread) of the capital raised only, (ii) gross spread and warrants that give the underwriters the option to purchase the IPO shares after listing or (iii) gross spread and an incentive fee.

Event Time
23 Jan 17:00 - 23 Jan 19:00
Event Location
Alliance Manchester Business School, Booth Street West, Manchester M15 6PB
Event Type

The compensation of underwriters forms a significant part of the direct costs for any initial public offering (IPO) company seeking listing on a stock exchange. The compensation package can be (i) a percentage (gross spread) of the capital raised only, (ii) gross spread and warrants that give the underwriters the option to purchase the IPO shares after listing or (iii) gross spread and an incentive fee.

Prof Saadouni will first provide an overview of the first two forms of compensation and how IPO issuers try to minimise their listing costs, and his second part of the talk will provide a summary of the findings of his recent research that attempts to address the question: can incentive fees bond underwriters and IPO issuers?

This is of practical importance to both the regulators and IPO issuers, especially following the recent report by the Organisation for Economic Cooperation & Development (OECD) which concludes that high underwriting fees charged by underwriters on IPOs are "akin to tacit collusion" and "work against long-term productive investment “.

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