Review of Financial Studies Vol. 13 No. 3 2000
IPOs and Long-Term Relationships: An Advantage of Book Building
Abstract
There is a global trend in initial public offerings toward the increased use of book building. Relative to other methods such as auctions, a key feature of book building is that the underwriter has total discretion in allocating shares, allowing allocations to be based on long-term relationships between underwriters and investors. In a multiperiod model with endogenous (and costly) information acquisition. I show that the underwriter's ability to lower underpricing depends largely on its ability to favor regular uninformed investors. One implication is that the hybrid book building/open offer method, which is becoming increasingly popular internationally, will lead to higher underpricing than straight book building.
- DOI
- 10.1093/rfs/13.3.697
- Volume
- 13
- Issue
- 3
- Pages
- 697-714
- Language
- en
- Sources
- openalex crossref