Why do underwriters charge lower underwriting fees for IPOs in Taiwan？

• Main Authors: Yu-Jen Wang, 王佑仁
• Other Authors: Hsuan-Chi Chen
• Format: Others
• Language: zh-TW
• Published: 2001
• Online Access: http://ndltd.ncl.edu.tw/handle/05963297218671067529

碩士 === 輔仁大學 === 金融研究所 === 89 === The thesis examines the fees charged for IPOs underwritten by Taiwanese underwriters. We find that the average fee charged is 0.9%, greatly different from those in other countries. Compared to the findings by Chen and Ritter (2000) for U.S. IPOs, the underwriting fees charged in Taiwan are not concentrated on any special level. In addition, analyzing the source of IPO underwriting revenues reveals that the IPO underwriting fees only account for a small fraction. We find that the revenues from IPO lottery account for 73% of total underwriting revenue, whereas only 27% for fees collected. For the subsample of self-subscription, the percentage of total revenues consisting of capital gains is about 60%, and the underwriting fees only account for about 10%. Processing fees charged for the IPO lottery and capital gains from the sale of stocks purchased by underwriters in advance are the main sources for the underwriting revenue. Therefore, the underwriters have a great incentive not to raise the offer price in order to attract investors and consequently increase capital gains, because the amount of the revenue increased from lowering the offer price should exceed the amount of underwriting fees increased from raising the offer price. This thesis is the first study to propose the “incentive hypothesis” in regard to the revenue structure for the Taiwan IPO market. The results reveal that the lower the odds of lottery, the more subscriptions for the IPO and the higher percentage of underwriter self-subscription, the lower underwriting fees. It is consistent with the story that Taiwanese underwriters adopt a strategy to focus on the collection of fees charged for the IPO lottery and capital gains from self-subscription. At the same time, an explanation is also offered for the reason why underwriting fees in Taiwan are lower than those anywhere else in the world. This thesis also discusses the elements influencing the odds of lottery and subscriptions. These might be helpful for investors to subscribe IPOs and for underwriters to estimate the lottery revenue.