The Breadth of IPO Marketing

Abstract

IPO underwriters face conflicting interests between issuers and institutional investors. The underwriter’s decision of how widely to market an offer plays a crucial role in how they manage these conflicting interests, as greater marketing breadth is beneficial to issuers but can be costly to underwriters’ reputations with preferred clients because of increased share rationing. We introduce a novel measure of IPO marketing breadth using the number of prospectuses underwriters distribute during the roadshow to empirically examine how underwriters manage this tradeoff. We find that underwriters market more widely when expected rationing risk is low and issuer bargaining power is high. We provide evidence that marketing breadth positively predicts pre-IPO price revisions, post-IPO liquidity, and underpricing; just over half of the pricing benefits accrues to underwriters and their clients, and the rest accrues to issuers.

Keywords: Bookbuilding; IPO Marketing; Initial Public Offerings; Information Dissemination

JEL Classification: G20, G24, G30