IPO Pricing Methods of International Investment Bank and Its Apocalypse to China

摘要

How to determine the offer price accurately in initial public offering (IPO) is very important for international investment banks. There are three methods for IPO pricing: open offer, auction and book-building, while are different in information extraction, stock allocation, under-pricing and etc., and all have dominances and flaws. Among them book-building has been more and more popular for its prominent mechanisms, but it is also criticized owing to its deficiencies such as the aggravation of “ the winner's cure” owing to the differential allocation, institutional collusion, investment bank's lack of competition and IPO information noise as well as comparative high costs comparing to other methods. In 2005, China abandoned fixed offer and selected book-building, but owning to the restriction of the allocation, the bidding behavior and the collusion of the institutional investors, the mechanisms of book-building in China is not effective. According to the low efficiency of valuation of the stock and the collusion of institutional investors in China's book-building practice, the regulation institutions must strengthen the information extraction mechanism, standardize the process of the quotation, foster experienced investors so as to promote the efficiency of the book-building in China.