Bookbuilding and Strategic Allocation

Cornelli, Francesca; Goldreich, David

doi:10.2139/ssrn.157352

Cited by 91 publications

(80 citation statements)

References 25 publications

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“…Research directly examining the relationship between investor embeddedness with underwriters and IPO valuation is sparse, although recently scholars have suggested that investors who participate regularly in an underwriter's deal networks (Hanley & Wilhelm, 1995), and who provide the underwriter with information during the price-setting process (Cornelli & Goldreich, 2001), benefit from underwriter share allocation decisions. The trust and information sharing that exist between embedded underwriters and investors reduce investor uncertainties and increase their willingness to pay more for the stock.…”

Section: Ipo Transaction Outcomesmentioning

confidence: 99%

“…An offering is oversubscribed when there are more requests for shares than there are shares available. In highly anticipated offerings, especially during hot markets, requests for shares may be several times greater than the number of shares available (Cornelli & Goldreich, 2001). Adjusting prices downward for high-demand offerings to benefit embedded transaction partners places an underwriter in direct conflict with the interests of the sellers.…”

Section: Ipo Transaction Outcomesmentioning

confidence: 99%

See 1 more Smart Citation

Constructing Deal Networks: Brokers as Network "Architects" in the U.S. IPO Market and Other Examples

Pollock¹,

Porac²,

Wade³

2004

The Academy of Management Review

139

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Section: Ipo Transaction Outcomesmentioning

confidence: 99%

Section: Ipo Transaction Outcomesmentioning

confidence: 99%

Constructing Deal Networks: Brokers as Network "Architects" in the U.S. IPO Market and Other Examples

Pollock¹,

Porac²,

Wade³

2004

The Academy of Management Review

139

View full text Add to dashboard Cite

show abstract

“…We assume that institutions are the primary source of any information extracted in the course of a bookbuilding effort and take Inst Alloc as a reflection of the banker's allocation strategy (see Cornelli and Goldreich, 2001, for evidence). Thus, large price revisions, if they derive from such information, should be associated with large institutional allocations, other things equal.…”

Section: Allocation Policymentioning

confidence: 99%

IPO Allocations: Discriminatory or Discretionary?

2001

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We estimate the structural links between IPO allocations, pre-market information production, and initial underpricing and find that (1) allocation policies favor institutional investors, both in the US and worldwide; (2) increasing institutional allocations results in offer prices that deviate more from the pre-marketing price range; (3) constraints on bankers' discretion reduce institutional allocations and result in smaller price revisions, indicating diminished information production; and (4) initial returns are directly related to information production and inversely related to institutional allocations. Our results indicate that discretionary allocations promote price discovery in the IPO market and reduce indirect issuance costs for IPO firms. r 2002 Elsevier Science B.V. All rights reserved.JEL classification: G32; G15; G24 Keywords: Initial public offerings; Bookbuilding; Underpricing; Intermediation; Allocation policy $ We are especially grateful to the referee for detailed comments that substantially improved the paper. We also thank Francesca Cornelli, William Greene, Michel Habib, Maureen O'Hara, Jay Ritter, G. William Schwert (the editor), and participants at the NYSE 'Global Equity Markets in Transition' conference (Hawaii, 2001), the American Finance Association meetings (Atlanta, 2002), the Third Toulouse Finance Workshop, and seminars at Cambridge University, Johann-Wolfgang-von-Goethe Universit. at Frankfurt, the University of North Carolina at Chapel Hill, Oxford University, the University of Virginia, and the University of Wisconsin-Madison for helpful comments. We wish to thank the many companies, banks, and bourses that made data available. All errors are our own.

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“…Other recent papers have examined the connection between share allocations and pricing in European IPO markets. Cornelli and Goldreich (2001) examine bookbuilding by one European investment bank and find that investors who post more informative bids do on average earn higher profits since they receive more favorable allocations of IPO shares. address the link between information gathering and allocations to institutional investors, using data from France, Germany, the United Kingdom and the United States.…”

mentioning

confidence: 99%

“…Thus, the kind of information gathering that happens through U.S.-style bookbuilding may already begin prior to the filing of the price ranges. 13 2) Underwriters on the Neuer Markt almost never amend posted ranges, whereas in the U.S. range amendments are quite common. 3) While U.S. issues are frequently priced outside the final price ranges, this is rare for Neuer Markt IPOs.…”

mentioning

confidence: 99%

IPO Pricing with Bookbuilding and a When-Issued Market

Aussenegg¹,

Pichler²,

Stomper³

2006

J. Financ. Quant. Anal.

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SummaryThis paper examines the German IPO pricing process which combines bookbuilding with a liquid pre-IPO when-issued market. We find no partial adjustment phenomenon, as has been documented for U.S. IPOs. We thus find no evidence that bookbuilding provides information for IPO pricing, beyond the information that is required to set preliminary price ranges. Once price ranges are set, when-issued trading commences and indicates how IPOs should be priced in the primary market. However, the evidence suggests that such trading does not fully supplant information gathering through bookbuilding.

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Bookbuilding and Strategic Allocation

Cited by 91 publications

References 25 publications

Constructing Deal Networks: Brokers as Network "Architects" in the U.S. IPO Market and Other Examples

Constructing Deal Networks: Brokers as Network "Architects" in the U.S. IPO Market and Other Examples

IPO Allocations: Discriminatory or Discretionary?

IPO Pricing with Bookbuilding and a When-Issued Market

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