Are IPO Underwriters Paid for the Services They Provide?

More reputable underwriters are paid more for taking companies public, because they are expected to provide a better service. However, independently from their reputation, underwriters provide different optional services to the firms they take public. We question whether the services provided are related to the gross spreads. Based on declarations in the prospectuses of Italian IPOs, we find that asking underwriters to stabilize the price does increase the spread. Issuers can therefore pay lower fees by facing the risk of no aftermarket support for their stocks. Conversely, liquidity support does not drive the spread. We further investigate whether the underwriters’ declarations are actually pursued, and find that in general, they do seem to act according to the issuers’ interests. Nevertheless, the fees charged are not informative about the provision of these services. Rather, other factors such as negative price revisions and negative (or low) underpricing drive the provision of these services.