Bookbuilding vs. Fixed Price: An Analysis of Competing Strategies for Marketing IPOs

We compare two mechanisms for selling IPOs, the fixed price method and American book-building, when investors have correlated information and can observe each other's subscription decisions. In this environment, the fixed price method is a strategy that can create cascading demand. Alternativel...

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Veröffentlicht in:	Journal of financial and quantitative analysis 1997-12, Vol.32 (4), p.383-403
Hauptverfasser:	Benveniste, Lawrence M., Busaba, Walid Y.
Format:	Artikel
Sprache:	eng
Schlagworte:	Auctions Capital Capital formation Capital market Equity Financial economics Fixed prices Information economics Initial public offerings Investors Marketing Prices Purchasing Quantitative analysis Reservation prices Stock exchange
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container_title	Journal of financial and quantitative analysis
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creator	Benveniste, Lawrence M. Busaba, Walid Y.
description	We compare two mechanisms for selling IPOs, the fixed price method and American book-building, when investors have correlated information and can observe each other's subscription decisions. In this environment, the fixed price method is a strategy that can create cascading demand. Alternatively, an underwriter building a book aggregates investor information into the offer price. We find that bookbuilding generates higher expected proceeds but exposes the issuer to greater uncertainty, and that it provides the option to sell additional shares that are not underpriced on the margin.
doi_str_mv	10.2307/2331230
format	Article
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subjects	Auctions Capital Capital formation Capital market Equity Financial economics Fixed prices Information economics Initial public offerings Investors Marketing Prices Purchasing Quantitative analysis Reservation prices Stock exchange
title	Bookbuilding vs. Fixed Price: An Analysis of Competing Strategies for Marketing IPOs
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