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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26683
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| Title: | Global Integration in Primary Equity Markets: The Role of U.S. Banks and
U.S. Investors. |
| Authors: | Ljungqvist, Alexander
Jenkinson, Tim
Wilhelm, William J. Jr. |
| Keywords: | Initial public offerings
bookbuilding
underwriting spreads
market integration |
| Issue Date: | 2000 |
| Series/Report no.: | FIN-00-018 |
| Abstract: | We examine the costs and benefits of the global integration of primary
equity markets associated with the parallel diffusion of U.S.
underwriting methods. We analyze both direct and indirect costs
(associated with underpricing) using a unique dataset of 2,132 IPOs by
non-U.S. issuers from 65 countries in 1992-1999. Bookbuilding typically
costs twice as much as a fixed-price offer, but on its own, does not
lead to lower underpricing. However, when conducted by U.S. banks and/or
targeted at U.S. investors, bookbuilding can reduce underpricing
significantly, relative to fixed-price offerings or bookbuilding efforts
conducted by ‘local’ banks. These results are obtained after
allowing for the endogeneity and interdependence of issuers’
choices. For the great majority of issuers, the gains associated with
lower underpricing outweighed the additional costs associated with
hiring U.S. banks or marketing in the U.S. This suggests a quality/price
trade-off contrasting with the findings of Chen and Ritter [Journal of
Finance 55, 200], particularly since non-U.S. issuers raising US$20m-80m
also typically pay a 7% spread when U.S. banks and investors are involved. |
| URI: | http://hdl.handle.net/2451/26683 |
| Appears in Collections: | Finance Working Papers
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