Has the Introduction of Bookbuilding Increased the Efficiency of International IPOs?

By 1999, close to 80% of non-US IPOs were marketed using bookbuilding methods. We study whether the recent introduction of this technology by US banks and their inclusion in non-US IPO syndicates has promoted efficiency in primary equity markets. We analyse both direct and indirect costs (associated with underpricing) using a unique dataset containing information on 2,051 initial public offerings in 61 non-US markets during the period 1992-1999. The direct costs of bookbuilding are typically twice as large as direct costs for fixed-price offers. However, bookbuilding leads to substantially less underpricing. This benefit is more pronounced when the target market includes US investors, when Us listing is sought and when US banks are part of the syndicate.