IPOs and Long-Term Relationships: An Advantage of Book Building
Year: 2000
Type: article
Abstract: There is a global trend in initial public offerings toward the increased use of book building. Relative to other methods such as auctions, a key feature of book building is that the underwriter has total discretion in allocating shares, allowing allocations to be based on long-term relationships between underwriters and investors. In a multiperiod model with endogenous (and costly) information acquisition. I show that the underwriter's ability to lower underpricing depends largely on its ability to favor regular uninformed investors. One implication is that the hybrid book building/open offer method, which is becoming increasingly popular internationally, will lead to higher underpricing than straight book building.
Source: Review of Financial Studies
DOI: 10.1093/rfs/13.3.697
Author: Ann E. Sherman
Institutions: University of Notre Dame, University of Minnesota
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3121729588