Global integration in primary equity markets: the role of U.S. banks and U.S. investors

We examine the costs and benefits of the global integration of primary equity markets associated with the parallel diffusion of U.S. underwriting methods. We analyze both direct and indirect costs (associated with underpricing) using a unique dataset of 2,143 IPOs by non-U.S. issuers from 65 countri...

Description complète

Détails bibliographiques
Auteurs principaux: Jenkinson, T, Wilhelm, W, Ljungqvist, A
Format: Working paper
Publié: University of Oxford 2001
_version_ 1826277255222919168
author Jenkinson, T
Wilhelm, W
Ljungqvist, A
author_facet Jenkinson, T
Wilhelm, W
Ljungqvist, A
author_sort Jenkinson, T
collection OXFORD
description We examine the costs and benefits of the global integration of primary equity markets associated with the parallel diffusion of U.S. underwriting methods. We analyze both direct and indirect costs (associated with underpricing) using a unique dataset of 2,143 IPOs by non-U.S. issuers from 65 countries in 1992-1999. Bookbuilding typically costs twice as much as a fixed-price offer, but on its own, does not lead to lower underpricing. However, when conducted by U.S. banks and/or targeted at U.S. investors, bookbuilding can reduce underpricing significantly, relative to fixed-price offerings or bookbuilding efforts conducted by 'local' banks. Compared to estimates of the benefit of secondary-market integration, the effects we find are substantially larger. These results are obtained after allowing for the endogeneity and interdependence of issuers' choices. For the great majority of 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 55, 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.
first_indexed 2024-03-06T23:26:09Z
format Working paper
id oxford-uuid:6a714cb6-1f26-4ef6-a886-a2f01d3b90bf
institution University of Oxford
last_indexed 2024-03-06T23:26:09Z
publishDate 2001
publisher University of Oxford
record_format dspace
spelling oxford-uuid:6a714cb6-1f26-4ef6-a886-a2f01d3b90bf2022-03-26T18:57:28ZGlobal integration in primary equity markets: the role of U.S. banks and U.S. investorsWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:6a714cb6-1f26-4ef6-a886-a2f01d3b90bfBulk import via SwordSymplectic ElementsUniversity of Oxford2001Jenkinson, TWilhelm, WLjungqvist, AWe examine the costs and benefits of the global integration of primary equity markets associated with the parallel diffusion of U.S. underwriting methods. We analyze both direct and indirect costs (associated with underpricing) using a unique dataset of 2,143 IPOs by non-U.S. issuers from 65 countries in 1992-1999. Bookbuilding typically costs twice as much as a fixed-price offer, but on its own, does not lead to lower underpricing. However, when conducted by U.S. banks and/or targeted at U.S. investors, bookbuilding can reduce underpricing significantly, relative to fixed-price offerings or bookbuilding efforts conducted by 'local' banks. Compared to estimates of the benefit of secondary-market integration, the effects we find are substantially larger. These results are obtained after allowing for the endogeneity and interdependence of issuers' choices. For the great majority of 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 55, 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.
spellingShingle Jenkinson, T
Wilhelm, W
Ljungqvist, A
Global integration in primary equity markets: the role of U.S. banks and U.S. investors
title Global integration in primary equity markets: the role of U.S. banks and U.S. investors
title_full Global integration in primary equity markets: the role of U.S. banks and U.S. investors
title_fullStr Global integration in primary equity markets: the role of U.S. banks and U.S. investors
title_full_unstemmed Global integration in primary equity markets: the role of U.S. banks and U.S. investors
title_short Global integration in primary equity markets: the role of U.S. banks and U.S. investors
title_sort global integration in primary equity markets the role of u s banks and u s investors
work_keys_str_mv AT jenkinsont globalintegrationinprimaryequitymarketstheroleofusbanksandusinvestors
AT wilhelmw globalintegrationinprimaryequitymarketstheroleofusbanksandusinvestors
AT ljungqvista globalintegrationinprimaryequitymarketstheroleofusbanksandusinvestors