EFFICIENCY OF IPO PRICING MECHANISMS: COMPARISON OF BOOK-BUILDING AND FIXED PRICE METHODS IN CHINA
Abstract
This paper compared the efficiency of IPO pricing mechanisms namely Fixed Price (FP) and Book-Building (BB) in China by analyzing IPOs' underpricing level. Findings include (1) the FP regime was more efficient than the BB one because the BB did not reduce the underpricing level in China as expected; and (2) reasons for this were (i) information transparency of the BB has not reduced other external effects, for example, impacts of some firm quality and ex-ante uncertainty proxies were still tight or even stronger since 2005; and (ii) investors were optimistic toward market conditions as higher quality underwriters invited in the BB procedure as well as the fact that underwriters often lowered offer price after collecting information from the BB process, which made the underpricing level rise.
Keywords: IPOs, Fixed Price, Book-Building, underpricing.
References
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