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Reforming the Bookbuilding Process for IPOs
Author(s) -
Jagannathan Ravi,
Sherman Ann E.
Publication year - 2005
Publication title -
journal of applied corporate finance
Language(s) - English
Resource type - Journals
eISSN - 1745-6622
pISSN - 1078-1196
DOI - 10.1111/j.1745-6622.2005.017_1.x
Subject(s) - initial public offering , transparency (behavior) , tranche , business , underwriting , common value auction , equity (law) , bond , process (computing) , monetary economics , finance , economics , microeconomics , computer science , computer security , political science , law , operating system
The controversy over IPOs has raised questions about whether retail investors are being unfairly denied access to shares in IPOs and whether the new Internet auction methods might provide a fairer and more efficient way to allocate shares. This article argues that much of the popular concern may be misdirected. By and large, bookbuilding is well designed to accomplish price discovery in a cost‐effective way. And standard auctions, which have been all but abandoned in a number of countries, have generally proved disappointing for equity IPOs (although they have been successful for bond offerings). The authors propose a “hybrid” form of securities issuance that would retain the advantages of bookbuilding while incorporating a public offer “tranche” for retail investors and other measures designed to increase transparency.