Bookbuilding and Strategic Allocation

Francesca Cornelli and David Goldreich

No 2160, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Under the bookbuilding procedure, an investment banker solicits bids for shares from institutional investors prior to pricing the issue. After collecting this demand information, the investment banker prices the issue and allocates shares to the investors. We examine the books from 39 international equity issues. For each issue we consider all institutional bids and the corresponding allocations. We infer some of the criteria the investment banker uses to allocate shares. We find that the investment banker awards more shares to bidders that provide information (such as a limit price in their bids). In addition, regular investors receive more favorable allocations - especially when the issue is heavily oversubscribed. The results support the winner's curse theories and the justifications for the use of bookbuilding.

Keywords: Bookbuilding; IPOs; Winner's Curse (search for similar items in EconPapers)
JEL-codes: G24 G30 G32 (search for similar items in EconPapers)
Date: 1999-05
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Citations: View citations in EconPapers (3)

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