Block-booking and IPO share allocation: the importance of being ignorant

Gondat-Larralde, Celine and James, Kevin R. (2004) Block-booking and IPO share allocation: the importance of being ignorant. Discussion paper, 480. Financial Markets Group, London School of Economics and Political Science, London, UK.

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Abstract

Given the opportunity to buy IPO shares of uncertain value at a fixed price, potentially informed investors have an incentive to refuse to participate in offerings the underwriter happens to overprice. We show that an underwriter can efficiently resolve this problem by entering into a repeat game with a stable coalition of investors who agree to participate in all of the bank’s IPOs (block-booking). Using a unique data-set consisting of UK transaction records that enables us to identify original investors for all large UK IPOs between 1997 and 2000, we find strong empirical support for this implication.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://fmg.lse.ac.uk
Additional Information:	© 2004 The Authors
Uncontrolled Keywords:	Initial public offerings, Share allocation; Underpricing, Book-building, Asymmetric information, Investment banking
Library of Congress subject classification:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System:	D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking; Venture Capital; Brokerage; Rating Agencies
Sets:	Research centres and groups > Financial Markets Group (FMG) Collections > Economists Online
Rights:	http://www.lse.ac.uk/library/rights/LSERO.htm
Identification Number:	480
URL:	http://eprints.lse.ac.uk/24678/

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