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Has the introduction of bookbuilding increased the efficiency of international IPOs?

  • Tim Jenkinson


  • William Wilhelm


  • Alexander Ljungqvist

By 1999, close to 80% of non-U.S. IPOs were marketed using bookbuilding methods. We study whether the recent introduction of this technology by U.S. banks and their inclusion in non-U.S. IPO syndicates has promoted efficiency in primary equity markets. We analyze both direct and indirect costs (associated with underpricing) using a unique dataset containing information on 2,051 initial public offerings in 61 non-U.S. markets during the period 1992-1999. The direct costs of bookbuilding are typically twice as large as direct costs for fixed-price offers. However, bookbuilding leads to substantially less underpricing. This benefit is more pronounced when the target market includes U.S. investors, when U.S. listing is sought and when U.S. banks are part of the syndicate.

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Paper provided by Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2000fe04.

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Date of creation: 2000
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Handle: RePEc:sbs:wpsefe:2000fe04
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  1. 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.
  2. Alexander P. Ljungqvist & William J. Wilhelm, 1999. "The Seven Percent Solution? An International Perspective on Underwriting Spreads," OFRC Working Papers Series 1999fe11, Oxford Financial Research Centre.
  3. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
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  7. Smith, Richard L, 1987. " The Choice of Issuance Procedure and the Cost of Competitive and Negotiated Underwriting: An Examination of the Impact of Rule 50," Journal of Finance, American Finance Association, vol. 42(3), pages 703-20, July.
  8. 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.
  9. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  10. Ljungqvist, Alexander P., 1997. "Pricing initial public offerings: Further evidence from Germany," European Economic Review, Elsevier, vol. 41(7), pages 1309-1320, July.
  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. Dunbar, Craig G., 2000. "Factors affecting investment bank initial public offering market share," Journal of Financial Economics, Elsevier, vol. 55(1), pages 3-41, January.
  13. Lee, Lung-Fei, 1978. "Unionism and Wage Rates: A Simultaneous Equations Model with Qualitative and Limited Dependent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(2), pages 415-33, June.
  14. Cornelli, Francesca & Goldreich, David, 1999. "Bookbuilding and Strategic Allocation," CEPR Discussion Papers 2160, C.E.P.R. Discussion Papers.
  15. Koh, Francis & Walter, Terry, 1989. "A direct test of Rock's model of the pricing of unseasoned issues," Journal of Financial Economics, Elsevier, vol. 23(2), pages 251-272, August.
  16. Hsuan-Chi Chen & Jay R. Ritter, 2000. "The Seven Percent Solution," Journal of Finance, American Finance Association, vol. 55(3), pages 1105-1131, 06.
  17. Sherman, Ann E., 2005. "Global trends in IPO methods: Book building versus auctions with endogenous entry," Journal of Financial Economics, Elsevier, vol. 78(3), pages 615-649, December.
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