| Author: | Sherman, A. E. Titman, S. |
| Title: | Building the IPO order book: underpricing and participation limits with costly information |
| Journal: | Journal of Financial Economics
2002 : JUL, VOL. 65:1, p. 3-29 |
| Index terms: | Initial public offerings Investment banks |
| Freeterms: | Book building IPO method |
| Language: | eng |
| Abstract: | The authors examine the book-building method for marketing IPOSs. In their model, the underwriter selects a group of investors along with a pricing and allocation mechanism to maximize the information generated during the process of going public. They also address the moral hazard problem faced by investors when evaluation is costly. When there is little need for accurate pricing, the expected gain from underpricing exactly offsets the investors' costs of acquiring information. When pricing accuracy is important, however, the number of investors participating in the offering is larger, underpricing is greater, the investors can earn economic rents. |
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