Block-Booking and IPO Share Allocation: The Importance of Being Ignorant
Given the opportunity to buy IPO shares of uncertain value at a fixed price, potentially informed investors have an incentive to refuse to participate in offerings the underwriter happens to overprice. We show that an underwriter can efficiently resolve this problem by entering into a repeat game with a stable coalition of investors who agree to participate in all of the bank's IPOs (block-booking). Using a unique data-set consisting of UK transaction records that enables us to identify original investors for all large UK IPOs between 1997 and 2000, we find strong empirical support for this implication.Céline Gondat-Larralde is at G.R.A.P.E, Université Montesquieu-Bordeaux IV, and Kevin James is a Visiting Fellow at the Financial Markets Group, London School of Economics.
When requesting a correction, please mention this item's handle: RePEc:fmg:fmgdps:dp480. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (The FMG Administration)
If references are entirely missing, you can add them using this form.