Working Paper: CEPR ID: DP2484
Authors: Alexander P. Ljungqvist; Tim Jenkinson; William J. Wilhelm Jr.
Abstract: By 1999, close to 80% of non-US IPOs were marketed using bookbuilding methods. We study whether the recent introduction of this technology by US banks and their inclusion in non-US IPO syndicates has promoted efficiency in primary equity markets. We analyse both direct and indirect costs (associated with underpricing) using a unique dataset containing information on 2,051 initial public offerings in 61 non-US 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 US investors, when Us listing is sought and when US banks are part of the syndicate.
Keywords: Initial Public Offerings; Bookbuilding; Underwriting Spreads
JEL Codes: G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Introduction of bookbuilding methods (G10) | More accurate pricing of IPOs (G24) |
| Bookbuilding methods (D44) | Reduced underpricing (G19) |
| Including US banks in syndicates (G21) | More accurate pricing of IPOs (G24) |
| Including US banks in bookbuilding (G21) | Benefits to issuers (G24) |
| Cheaper IPO strategy without US banks (G24) | Worse off issuers (G33) |
| Worldwide introduction of bookbuilding methods (G10) | Promoted efficiency in primary equity markets (G10) |