Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors.
43 Pages Posted: 4 Nov 2008
There are 4 versions of this paper
Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors
Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors
Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors.
Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors
Date Written: 2000
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, thegains 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.
Keywords: Initial public offerings, bookbuilding, underwriting spreads, market integration
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Why Has IPO Underpricing Changed Over Time?
By Tim Loughran and Jay R. Ritter
-
Why Has IPO Underpricing Changed Over Time?
By Tim Loughran and Jay R. Ritter
-
A Review of IPO Activity, Pricing and Allocations
By Jay R. Ritter and Ivo Welch
-
A Review of IPO Activity, Pricing, and Allocations
By Ivo Welch and Jay R. Ritter
-
Why Don't Issuers Get Upset About Leaving Money on the Table in Ipos?
By Tim Loughran and Jay R. Ritter
-
Underpricing and Entrepreneurial Wealth Losses in Ipos: Theory and Evidence
-
Common Stock Offerings Across the Business Cycle: Theory and Evidence
By Hyuk Choe, Ronald W. Masulis, ...
-
IPO Market Cycles: Bubbles or Sequential Learning?
By Michelle Lowry and G. William Schwert
-
IPO Market Cycles: Bubbles or Sequential Learning?
By Michelle Lowry and G. William Schwert