Syndicate Structure in Initial Public Offerings: Syndicate Formation, Share Allocation, Fee Distribution, and Underpricing in the Korean Market*

Abstract

Using unique information obtained from Korea regarding syndicates’ underwriting of initial public offerings (IPOs), this paper examines how syndicates are formed into syndicate structures, including fee distributions among syndicate members, and also investigates how they affect the IPO process, such as the underpricing of IPOs. Reciprocal participation among syndicates affects the formation of syndicates, and the formation strongly depends on the regulation of underwriting. Approximately 30% of the sample, which was hand-collected, is managed by sole syndicates in that the book manager of the IPO underwrites the entire shares and takes out the overall underwriting fee. The remaining 70% is mainly controlled by the book managers in that over 90% of the shares for an IPO are allocated to the book managers, and over 90% of the underwriting fees are distributed to the book managers. The syndicate structure of an IPO has little effect on underpricing, which strongly depends on underwriting regulation, market conditions during the IPO process, and price adjustment after book building.