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

Posted: 28 Jun 2002

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

Abstract

We examine the costs and benefits of the global integration of IPO markets associated with the diffusion of U.S. underwriting methods in the 1990s. Bookbuilding is becoming increasingly popular outside the U.S. and typically costs twice as much as a fixed-price offer. However, on its own bookbuilding only leads to lower underpricing when conducted by U.S. banks and/or targeted at U.S. investors. For most 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, 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, international finance, market integration

JEL Classification: G32, F36, G24, G15

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. Forthcoming in Review of Financial Studies, Available at SSRN: https://ssrn.com/abstract=307147

Alexander Ljungqvist (Contact Author)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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/

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