DP3644 Bids and Allocations in European IPO Bookbuilding

Author(s):	Tim Jenkinson, Howard Jones
Publication Date:	November 2002
Keyword(s):	bookbuilding, IPO
JEL(s):	G14, G24
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=3644

This Paper uses evidence from a dataset of 27 European IPOs to analyse how investors bid and the factors that influence their allocations. We have the complete books for these deals ? amounting to 5540 bids ? and so can analyse directly how bids and allocations are related. All these deals are private sector IPOs where the bookrunner was a leading European investment bank. We make use of a unique ranking of investor quality, associated with the likelihood of flipping the IPO, as produced by a group of US and European investment banks. We find that 'high quality' investors are consistently favoured in allocation and in out-turn profits. We also find that bids submitted via the bookrunner and large bids received better pro-rata allocations and higher average profits. We find that a very small proportion of all bids submitted during the bookbuilding contain price limits ? especially in hot IPOs ? and, in contrast to Cornelli and Goldreich (2001), we do not find that that such bids are favoured in terms of allocation.