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Rev Fin 1991; 4:709-726
© 1991 the Society for Financial Studies

Article

Preplay communication, participation restrictions, and efficiency in initial public offerings

C Spatt and S Srivastava
Graduate School of Industrial Administration, Carnegie Mellon University, Pittsburgh, PA 15213, USA

Abstract

The extent to which the observed procedures for selling new issues are efficient is studied. We show that a posted-priced mechanism, in conjunction with nonbinding preplay communication and participation restrictions, leads to an allocation of the security (and payment) that maximizes the seller's expected revenue, given the informational constraints imposed by the optimizing incentives of the potential buyers.


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