Secret Reservation Prices in Bookbuilding |
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| Authors: | Brisley, Neil Busaba, Walid Y. |
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| Affiliation: | Richard Ivey School of Business, University of Western Ontario |
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| Abstract: | Why is the issuer's reservation price not disclosed in bookbuilding?We analyze the differential effect of reservation price disclosureon the underpricing required to elicit truthful indicationsof interest from investors. We find that a policy of disclosurewould increase proceeds for firms with a reservation price sufficientlyhigh relative to possible investor valuations of the shares,but would decrease proceeds for issuers with lower reservationprices. The former group is likely to be absent from the IPOmarket, explaining why secrecy in reservation prices is thenorm. |
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