1 Bookbuilding Information Production Revisited: Discount for Investor’s Disutility?

This paper examines the contractual link between moral hazard, adverse selection and allocation policies in bookbuilding Initial Public Offerings (IPOs). Implicit in asymmetric information theory, and agency theory, is the assumption that investors ’ cost of information acquisition entails partial price adjustment to public information that is second-best. In contrast, the model in this paper uniquely shows that price outcome in the US and European IPOs, with distinct policies, is first-best and conditional on investor’s utility for allocation of shares in relation to his disutility of effort for information production. The model has testable empirical implications regarding underpricing and IPO allocation policies in the US and Europe