NISLAB Seminar with Evgeny Lyandres

Speaker: Prof. Evgeny Lyandres (Boston University School of Management) Title: "Do IPO underwriters collude?" Abstract: We propose and implement, for the first time, a direct test of the hypothesis of implicit collusion in the U.S. underwriting market against the alternative of oligopolistic competition. We construct two models of an underwriting market — a market characterized by oligopolistic competition and a market in which banks collude in setting underwriter fees. Each of the two models leads to equilibrium relations between market shares and absolute and relative compensation for underwriting services of higher-quality and lower-quality underwriters on one hand and the state of the IPO market on the other hand. These relations in the collusive scenario differ substantially from those in the competitive setting. We use 36 years of data on U.S. IPOs to test the directional predictions of the two models. Our empirical results are partially consistent with the collusion hypothesis, and are inconsistent with the oligopolistic competition hypothesis.