Analyst Hype in Ipos: Explaining the Popularity of Bookbuilding

54 Pages Posted: 1 Sep 2004

See all articles by Francois Degeorge

Francois Degeorge

University of Lugano - Faculty of Economics; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

François Derrien

HEC Paris - Finance Department

Kent L. Womack

University of Toronto - Rotman School of Management (Deceased)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2005


The bookbuilding procedure for selling initial public offerings (IPO) to investors has captured significant market share from auction alternatives in recent years, despite the significantly lower costs related to the auction mechanism in terms of direct fees and initial underpricing. This article shows that in the French market, where the frequency of bookbuilding and auctions was approximately equal in the 1990s, the ostensible advantages to the issuer using bookbuilding were advertising-related benefits. Specifically, we find that book-built issues were more likely to be followed and positively recommended by the lead underwriters, as well as to receive "booster shots" after issuance if the shares had fallen. Even nonunderwriters' analysts appear to promote book-built issues more but only as a way of currying favor with the IPO underwriter for allocations of future deals. Yet we do not observe valuation or post-IPO return differentials that suggest these types of promotion have any value to the issuing firm. We conclude that underwriters using the bookbuilding procedure have convinced issuers of the questionable value of the advertising and promotion of their shares.

Note: Previously titled: Quid Pro Quo in IPOs: Why Book-Building is Dominating Auctions

Keywords: IPO, book-building, auctions

JEL Classification: D44, D42, G32

Suggested Citation

Degeorge, Francois and Derrien, François and Womack, Kent L., Analyst Hype in Ipos: Explaining the Popularity of Bookbuilding (September 2005). Tuck School of Business Working Paper No. 2005-27, ECGI - Finance Working Paper No. 65/2005, RICAFE Working Paper No. 011, Available at SSRN: or

Francois Degeorge (Contact Author)

University of Lugano - Faculty of Economics ( email )

via Giuseppe Buffi 13
CH-6904 Lugano
41 58 666 4634 (Phone)
41 58 666 4647 (Fax)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

European Corporate Governance Institute (ECGI)

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

François Derrien

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
33 1 39 67 72 98 (Phone)


Kent L. Womack

University of Toronto - Rotman School of Management (Deceased)

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