Yeoman (2001) shows that there existents a trade-off
between IPO underpricing and gross spread. He argues that firms experience lower
underpricing when they incur a higher gross spread during the IPOs. Because firms whose
gross spreads are high in IPOs want to participate highly so as to reduce IPO underpricing
when going public. Habib and Ljungqvist (2001) also indicate that the IPO underpricing is
negatively related to the marketing costs of IPOs. Based on these prior researches, I expect
that there is a negative relationship between IPO underpricing and the percentage of gross
spread to principle amounts. In the paper done by Franzke (2004), Lee and Wahal (2004) and
many other researchers, they all find that IPOs backed by venture capitals experience more
underpricing than comparable those who are not backed by venture capitals. And I also hope
to see this phenomenon in my thesis.