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Why are European IPOs so rarely priced outside the indicative price range?

William J. Wilhelm (), Alan Morrison () and Tim Jenkinson ()

OFRC Working Papers Series from Oxford Financial Research Centre

Abstract: In contrast to practice in the U.S., European IPOs are very rarely priced outside the indicative price range, and frequently are priced at its upper bound. We develop a model that provides a rationale for this seemingly inefficient pricing behaviour. The model allows for the practice, observed in Europe but not in the U.S., whereby underwriters obtain information from investors prior to establishing the indicative price range. With this alternative staging of the information game, first studied by Benveniste and Spindt (1989), a commitment to not exceeding the upper bound is necessary to extract private information from investors. The model has important implications for empirical research based on European primary market data.

Date: 2003
New Economics Papers: this item is included in nep-eec and nep-fin
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Journal Article: Why are European IPOs so rarely priced outside the indicative price range? (2006) Downloads
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