Bookbuilding and Strategic Allocation: Evidence from the Brazilian Stock Market

We examine four bookbuilding processes on the Brazilian stock market executed by an investment bank from 2003 to 2004. In a bookbuilding process, the investment bank has the discretionary power in pricing and in allocating shares to investors. We analyze the allocation determinants and we find empirical evidence that bookbuilding does induce investors to disclose superior information. However there is strong evidence that issues related to majority controlling position, liquidity on secondary market, and flipping activities impact on allocation criteria. We find differences between allocation determinants derived from (a) initial public offerings and (b) seasoned equity offerings, but in both cases there is a tendency to favor long term investors.