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Bids and Allocations in European IPO Bookbuilding

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  • Jenkinson, Tim
  • Jones, Howard

Abstract

This Paper uses evidence from a dataset of 27 European IPOs to analyse how investors bid and the factors that influence their allocations. We have the complete books for these deals ? amounting to 5540 bids ? and so can analyse directly how bids and allocations are related. All these deals are private sector IPOs where the bookrunner was a leading European investment bank. We make use of a unique ranking of investor quality, associated with the likelihood of flipping the IPO, as produced by a group of US and European investment banks. We find that 'high quality' investors are consistently favoured in allocation and in out-turn profits. We also find that bids submitted via the bookrunner and large bids received better pro-rata allocations and higher average profits. We find that a very small proportion of all bids submitted during the bookbuilding contain price limits ? especially in hot IPOs ? and, in contrast to Cornelli and Goldreich (2001), we do not find that that such bids are favoured in terms of allocation.

Suggested Citation

  • Jenkinson, Tim & Jones, Howard, 2002. "Bids and Allocations in European IPO Bookbuilding," CEPR Discussion Papers 3644, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3644
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    References listed on IDEAS

    as
    1. Jay R. Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," Journal of Finance, American Finance Association, vol. 57(4), pages 1795-1828, August.
    2. Francesca Cornelli & David Goldreich, 2001. "Bookbuilding and Strategic Allocation," Journal of Finance, American Finance Association, vol. 56(6), pages 2337-2369, December.
    3. Alexander P. Ljungqvist & Tim Jenkinson & William J. Wilhelm, Jr., 2003. "Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors," The Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 63-99.
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    5. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212.
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    More about this item

    Keywords

    Ipo; Bookbuilding;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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