publication . Article . Other literature type . 1989

How investment bankers determine the offer price and allocation of new issues

Lawrence M. Benveniste; Paul A. Spindt;
  • Published: 01 Jan 1989 Journal: Journal of Financial Economics, volume 24, pages 343-361 (issn: 0304-405X, Copyright policy)
  • Publisher: Elsevier BV
Investigates how investment bankers use indications of interest from client investors to price and allocate new issues. Investors who buy initial public offerings (IPOs) can achieve sizable early returns. Recent research rationalizes this apparent contradiction to market efficiency as a response to asymmetric information; but this research ignores how information frictions bear on IPO marketing. This work analyzes underwriters' IPO marketing and shows how the information it yields is used in IPO pricing and allocation. By means of this access to investors, underwriters can reduce IPO underpricing. Develops a model of the premarket as an auction constructed to in...
free text keywords: Investment banking, business.industry, business, Underwriting, Finance, Economics, Initial public offering, Information asymmetry, Underwriting contract, Book building, Common value auction, Monetary economics, Population, education.field_of_study, education
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