This paper examines whether there is the clustering and competition or collusion in IPO market using 2000-2006.7 in Korean IPO market. The larger number of IPOs with a particular spread like 7% indicates either that underwriters collude as alleged conspiracy among underwriters to profit from particular spread IPOs or that particular spread contract is an efficient contract that better suits the IPOs. We find that in Korean IPO market, spread is clustered at 3.5% on IPOs for moderate sized IPOs which are between 90 million Won and 330 million Won. Overall 3.5% spread use on moderate size IPO is 74% and increases gradually over time in Korean IPO market. Our empirical result supports against the collusion theory. Low concentration characterizes the Korean IPO market with comparing another product market. 3.5% spread use does not contain abnormal profits relative to other IPOs. Cost saving, i.e., concave pattern is confirmed in 3.5% use. We find that characteristic factors related to underwriters and issuers such as proceeds, secondary sale, earnings, and reputation affect 3.5% spread use positively or negatively. That is, In supporting efficient contract theory, 3.5% contract use is less likely as proceeds increase, but more likely for even over 350 million more IPOs. Also it is more likely when insider shares are more in IPO and volatility of stock return is higher (not significant). Also it is less likely when earnings and debt (not significant) are higher, when underwriter is more reputable. Proceeds and secondary sale in 3.5% IPOs are the effect on the underpricing in 3.5% IPOs. Reputation and IPO market concentration are not the effect on the underpricing in 3.5% IPOs. In conclusion, this paper argues that there is no collusive alleged conspiracy in Korean IPO market, which means against cartel theory, and there is no excess profit for underwriters on 3.5% IPOs.
Keywords: Spreads, Proceeds, Underwriters, Underpricing, 3.5% contract, Competition or Collusion, Clustering, Cartel theory, Efficient contract,