by Amrith Krushnakumaar
Abstract
In recent years, book-building has emerged as a method of choice among investment banks in the U.S and around the world for pricing and selling initial public offerings (IPOs). Proponents of the book-building method argue that discriminatory share allocations, the pooling of IPOs and other standard book-building practices price new shares more accurately, thus enabling the issuer to maximize proceeds received from the IPO, and minimize fluctuations in share price immediately after the IPOs. However, in view of the average first-day price increases common among IPOs marketed by the book-building method, and the potential for investment banks to abuse their power when allocating shares, skeptics claim that book-building is inadequate in helping the issuer meet its aims. Amid calls by regulators and critics to reform the existing book-building method, W.R Hambrecht, an investment bank, introduced the auction method of pricing and selling IPOs for the first time in the United States in 1999. This paper aims to determine which method might be more effective in promoting an issuer’s aims by employing a matched methodology to fairly compare more recent book-building and auction IPOs in the U.S.
Professor Edward Tower, Faculty Advisor
Professor Allen H. Huang, Faculty Advisor
JEL Codes: D21, D22, E44, G1,
