Block-booking and IPO share allocation: the importance of being ignorant

Celine Gondat-Larralde () and Kevin R. James

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Given the opportunity to buy IPO shares of uncertain value at a fixed price, potentially informed investors have an incentive to refuse to participate in offerings the underwriter happens to overprice. We show that an underwriter can efficiently resolve this problem by entering into a repeat game with a stable coalition of investors who agree to participate in all of the bank’s IPOs (block-booking). Using a unique data-set consisting of UK transaction records that enables us to identify original investors for all large UK IPOs between 1997 and 2000, we find strong empirical support for this implication.

Keywords: Initial public offerings; Share allocation; Underpricing; Book-building; Asymmetric information; Investment banking (search for similar items in EconPapers)
JEL-codes: D82 G18 G24 G32 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2004-02-01
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Working Paper: Block-Booking and IPO Share Allocation: The Importance of Being Ignorant (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:24678

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