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Bookbuilding and Strategic Allocation

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  • Cornelli, Francesca
  • Goldreich, David

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.

Suggested Citation

  • Cornelli, Francesca & Goldreich, David, 1999. "Bookbuilding and Strategic Allocation," CEPR Discussion Papers 2160, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2160
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    References listed on IDEAS

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    Cited by:

    1. Sherman, Ann E. & Titman, Sheridan, 2002. "Building the IPO order book: underpricing and participation limits with costly information," Journal of Financial Economics, Elsevier, vol. 65(1), pages 3-29, July.
    2. Tim Jenkinson & William Wilhelm & Alexander Ljungqvist, 2000. "Has the introduction of bookbuilding increased the efficiency of international IPOs?," Economics Series Working Papers 2000-FE-04, University of Oxford, Department of Economics.
    3. Ljungqvist, Alexander P. & Wilhelm, William Jr., 2002. "IPO allocations: discriminatory or discretionary?," Journal of Financial Economics, Elsevier, vol. 65(2), pages 167-201, August.

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    More about this item

    Keywords

    Bookbuilding; IPOs; Winner's Curse;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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