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IPO Pricing with Bookbuilding and a When-Issued Market

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Author Info

  • Alex Stomper

    (Department of Business Studies, University of Vienna)

  • Wolfgang Aussenegg

    (Department of Finance, Vienna University of Technology)

  • Pegaret Pichler

    (Department of Finance and Economics, Sloan School of Management Massachusetts Institute of Technology)

Abstract

This paper examines the German IPO pricing process which combines bookbuilding with a liquid pre-IPO when-issued market. We find no partial adjustment phenomenon, as has been documented for U.S. IPOs. We thus find no evidence that bookbuilding provides information for IPO pricing, beyond the information that is required to set preliminary price ranges. Once price ranges are set, when-issued trading commences and indicates how IPOs should be priced in the primary market. However, the evidence suggests that such trading does not fully supplant information gathering through bookbuilding.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2004.8.

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Date of creation: Jan 2004
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Handle: RePEc:fem:femwpa:2004.8

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Keywords: Initial public offerings; Bookbuilding; When-issued trading;

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References

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  1. Jenkinson, Tim & Jones, Howard, 2002. "Bids and Allocations in European IPO Bookbuilding," CEPR Discussion Papers 3644, C.E.P.R. Discussion Papers.
  2. William J. Wilhelm & Alan Morrison & Tim Jenkinson, 2003. "Why are European IPOs so rarely priced outside the indicative price range?," OFRC Working Papers Series 2003fe05, Oxford Financial Research Centre.
  3. Murphy, Kevin M & Topel, Robert H, 2002. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 88-97, January.
  4. Habib, Michel A & Ljungqvist, Alexander P, 2001. "Underpricing and Entrepreneurial Wealth Losses in IPOs: Theory and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 433-58.
  5. Michelle Lowry & G. William Schwert, 2002. "IPO Market Cycles: Bubbles or Sequential Learning?," Journal of Finance, American Finance Association, vol. 57(3), pages 1171-1200, 06.
  6. Titman, Sheridan & Trueman, Brett, 1986. "Information quality and the valuation of new issues," Journal of Accounting and Economics, Elsevier, vol. 8(2), pages 159-172, June.
  7. Francesca Cornelli, 2001. "Bookbuilding and Strategic Allocation," Journal of Finance, American Finance Association, vol. 56(6), pages 2337-2369, December.
  8. Ljungqvist, Alexander P & Wilhelm Jr, William J, 2002. "IPO Pricing in the dot-com Bubble," CEPR Discussion Papers 3314, C.E.P.R. Discussion Papers.
  9. 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," Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 63-99.
  10. William Wilhelm & Alexander Ljungqvist, 2001. "IPO Allocations: Discriminatory or Discretionary?," Economics Series Working Papers 2001-FE-08, University of Oxford, Department of Economics.
  11. Hanley, Kathleen Weiss, 1993. "The underpricing of initial public offerings and the partial adjustment phenomenon," Journal of Financial Economics, Elsevier, vol. 34(2), pages 231-250, October.
  12. Carter, Richard B & Manaster, Steven, 1990. " Initial Public Offerings and Underwriter Reputation," Journal of Finance, American Finance Association, vol. 45(4), pages 1045-67, September.
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  14. Vojislav Maksimovic & Pegaret Pichler, 2006. "Structuring the Initial Offering: Who to Sell To and How to Do It," Review of Finance, European Finance Association, vol. 10(3), pages 353-387, September.
  15. Michelle Lowry & G. William Schwert, 2001. "Biases in the IPO Pricing Process," NBER Working Papers 8586, National Bureau of Economic Research, Inc.
  16. Sushil Bikhchandani & Chi-fu Huang, 1993. "The Economics of Treasury Securities Markets," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 117-134, Summer.
  17. Tim Loughran & Jay R. Ritter, 2002. "Why Don't Issuers Get Upset About Leaving Money on the Table in IPOs?," Review of Financial Studies, Society for Financial Studies, vol. 15(2), pages 413-444, March.
  18. Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, vol. 54(3), pages 679-85, May.
  19. Beatty, Randolph P & Welch, Ivo, 1996. "Issuer Expenses and Legal Liability in Initial Public Offerings," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 545-602, October.
  20. Chatterjea, Arkadev & Jarrow, Robert A., 1998. "Market Manipulation, Price Bubbles, and a Model of the U.S. Treasury Securities Auction Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(02), pages 255-289, June.
  21. Loffler, Gunter & Panther, Patrick F. & Theissen, Erik, 2005. "Who knows what when? The information content of pre-IPO market prices," Journal of Financial Intermediation, Elsevier, vol. 14(4), pages 466-484, October.
  22. Nyborg, Kjell G. & Sundaresan, Suresh, 1996. "Discriminatory versus uniform Treasury auctions: Evidence from when-issued transactions," Journal of Financial Economics, Elsevier, vol. 42(1), pages 63-104, September.
  23. Bradley, Daniel J. & Jordan, Bradford D., 2002. "Partial Adjustment to Public Information and IPO Underpricing," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(04), pages 595-616, December.
  24. repec:kap:eurfin:v:10:y:2006:i:3:p:353-387 is not listed on IDEAS
  25. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
  26. Benveniste, Lawrence M. & Busaba, Walid Y. & Wilhelm, William Jr., 2002. "Information Externalities and the Role of Underwriters in Primary Equity Markets," Journal of Financial Intermediation, Elsevier, vol. 11(1), pages 61-86, January.
  27. Benveniste, Lawrence M. & Spindt, Paul A., 1989. "How investment bankers determine the offer price and allocation of new issues," Journal of Financial Economics, Elsevier, vol. 24(2), pages 343-361.
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Citations

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Cited by:
  1. Renneboog, L.D.R. & Spaenjers, C., 2008. "The Dutch Grey Market," Discussion Paper 2008-035, Tilburg University, Tilburg Law and Economic Center.
  2. Peter Nippel & Christian Pierdzioch & Andrea Schertler, 2005. "Underpricing and Index Excess Returns," Kiel Working Papers 1259, Kiel Institute for the World Economy.
  3. Bennouri, Moez & Gimpel, Henner & Robert, Jacques, 2011. "Measuring the impact of information aggregation mechanisms: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 78(3), pages 302-318, May.
  4. Gresse, Carole & Gajewski, Jean-Fran├žois, 2006. "A Survey of the European IPO Market," Economics Papers from University Paris Dauphine 123456789/8670, Paris Dauphine University.
  5. Elston, Julie Ann & Yang, J. Jimmy, 2010. "Venture capital, ownership structure, accounting standards and IPO underpricing: Evidence from Germany," Journal of Economics and Business, Elsevier, vol. 62(6), pages 517-536, November.
  6. Edwards, Amy K. & Hanley, Kathleen Weiss, 2010. "Short selling in initial public offerings," Journal of Financial Economics, Elsevier, vol. 98(1), pages 21-39, October.
  7. Cook, Douglas O. & Kieschnick, Robert & McCullough, B.D., 2008. "Regression analysis of proportions in finance with self selection," Journal of Empirical Finance, Elsevier, vol. 15(5), pages 860-867, December.
  8. Benveniste, Lawrence M. & Fu, Huijing & Seguin, Paul J. & Yu, Xiaoyun, 2008. "On the anticipation of IPO underpricing: Evidence from equity carve-outs," Journal of Corporate Finance, Elsevier, vol. 14(5), pages 614-629, December.
  9. Gajewski, Jean-Fran├žois & Gresse, Carole, 2006. "A Survey of the European IPO Market," ECMI Papers 1207, Centre for European Policy Studies.
  10. Alex Stomper & Pegaret Pichler, 2004. "Primary Market Design: Direct Mechanisms and Markets," Working Papers 2004.9, Fondazione Eni Enrico Mattei.
  11. Ravi Jagannathan & Ann E. Sherman, 2006. "Why Do IPO Auctions Fail?," NBER Working Papers 12151, National Bureau of Economic Research, Inc.

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