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RFS Advance Access published online on January 29, 2007
Review of Financial Studies, doi:10.1093/revfin/hhm010
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Copyright © The Author 2007. Published by Oxford University Press on behalf of The Society for Financial Studies.

Analyst Hype in IPOs: Explaining the Popularity of Bookbuilding

François Degeorge, François Derrien and Kent L. Womack
Institute of Finance, University of Lugano, via Buffi 13, 6900 Lugano, Switzerland
Rotman School of Management, University of Toronto, 105 St George Street, Toronto, ON M5S 3E6, Canada
Tuck School of Business, Dartmouth College, 100 Tuck Hall, Hanover, NH 03755

francois.degeorge{at}lu.unisi.ch

francois.derrien{at}rotman.utoronto.ca

Kent.L.Womack{at}Dartmouth.EDU

The bookbuilding IPO procedure has captured significant market share from auction alternatives recently, despite the significantly lower costs related to the auction mechanism. In France, where both mechanisms were used in the 1990s, the ostensible advantages of bookbuilding were advertising-related benefits. Book-built issues were more likely to be followed and positively recommended by lead underwriters. Even nonunderwriters' analysts promote book-built issues more in order to curry favor with the IPO underwriter for allocations of future deals. Yet we do not observe valuation or post-IPO return differentials that suggest these types of promotion have any value to the issuing firm.


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