Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors
New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)
University of Oxford - Said Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
William J. Wilhelm
University of Virginia - McIntire School of Commerce
September 3, 2001
We examine the costs and benefits of the global integration of IPO markets associated with the diffusion of U.S. underwriting methods in the 1990s. Bookbuilding is becoming increasingly popular outside the U.S. and typically costs twice as much as a fixed-price offer. However, on its own bookbuilding only leads to lower underpricing when conducted by U.S. banks and/or targeted at U.S. investors. For most 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], particularly since non-U.S. issuers raising USS20m-80m also typically pay a 7% spread when U.S. banks and investors are involved.
Number of Pages in PDF File: 46
Keywords: Initial public offerings, bookbuilding, underwriting spreads, international finance, market integration
JEL Classification: G32working papers series
Date posted: October 16, 2000
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