DP2484 Has the Introduction of Bookbuilding Increased the Efficiency of International IPOs?

Author(s): Tim Jenkinson, Alexander P. Ljungqvist, William J Wilhelm Jr
Publication Date: June 2000
Keyword(s): Bookbuilding, Initial Public Offerings, Underwriting Spreads
JEL(s): G32
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2484

By 1999, close to 80% of non-US IPOs were marketed using bookbuilding methods. We study whether the recent introduction of this technology by US banks and their inclusion in non-US IPO syndicates has promoted efficiency in primary equity markets. We analyse both direct and indirect costs (associated with underpricing) using a unique dataset containing information on 2,051 initial public offerings in 61 non-US markets during the period 1992-1999. The direct costs of bookbuilding are typically twice as large as direct costs for fixed-price offers. However, bookbuilding leads to substantially less underpricing. This benefit is more pronounced when the target market includes US investors, when Us listing is sought and when US banks are part of the syndicate.