Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors

43 Pages Posted: 11 Nov 2008

See all articles by Alexander Ljungqvist

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR); Swedish House of Finance; European Corporate Governance Institute (ECGI)

Tim Jenkinson

University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

William J. Wilhelm

University of Virginia - McIntire School of Commerce

Multiple version iconThere are 4 versions of this paper

Date Written: September 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, 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, 2000], 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

Ljungqvist, Alexander and Ljungqvist, Alexander and Jenkinson, Tim and Wilhelm, William J., Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors (September 2000). NYU Working Paper No. S-FI-00-03, Available at SSRN: https://ssrn.com/abstract=1298859

Alexander Ljungqvist (Contact Author)

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Tim Jenkinson

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
United Kingdom
+44 1865 288916 (Phone)
+44 1865 288831 (Fax)

HOME PAGE: http://www.sbs.oxford.edu/timjenkinson

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

William J. Wilhelm

University of Virginia - McIntire School of Commerce ( email )

Rouss & Robertson Halls, East Lawn
P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-924-7666 (Phone)
434-924-7074 (Fax)

HOME PAGE: http://gates.comm.virginia.edu/wjw9a/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
99
Abstract Views
1,349
Rank
39,602
PlumX Metrics