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Secret Reservation Prices in Bookbuilding

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  • Neil Brisley
  • Walid Y. Busaba

Abstract

Why is the issuer's reservation price not disclosed in bookbuilding? We analyze the differential effect of reservation price disclosure on the underpricing required to elicit truthful indications of interest from investors. We find that a policy of disclosure would increase proceeds for firms with a reservation price sufficiently high relative to possible investor valuations of the shares, but would decrease proceeds for issuers with lower reservation prices. The former group is likely to be absent from the IPO market, explaining why secrecy in reservation prices is the norm. Copyright 2007, Oxford University Press.

Suggested Citation

  • Neil Brisley & Walid Y. Busaba, 2007. "Secret Reservation Prices in Bookbuilding," Review of Finance, European Finance Association, vol. 11(4), pages 693-718.
    • Handle: RePEc:oup:revfin:v:11:y:2007:i:4:p:693-718
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    File URL: http://hdl.handle.net/10.1093/rof/rfm025
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    Cited by:

    1. Busaba, Walid Y. & Chang, Chun, 2010. "Bookbuilding vs. fixed price revisited: The effect of aftermarket trading," Journal of Corporate Finance, Elsevier, vol. 16(3), pages 370-381, June.

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