Abstract

This paper used a sample of 50 Spanish fund managers to analyze their opinion about the two main Initial Private Offering (IPO) methods, book building and auction. The theoretical literature has argued that the principal system is book building due to the control on allocation and price it supplies for the issuer and underwriters, but very few studies have been done in relation with investors, and never focused on their system preferences. Though, the real reasons why they prefer book building have not been demonstrated, as no survey has been conducted up to now to know their opinion. The results show that 82% of the sample preferred book building to auction, mainly because of the possibility to get good allocations and to reduce risk through a high knowledge of the level of oversubscription. However, the price of the issue did not appear to be very important for fund managers, which suggests the possibility that they are more worried for the real demand than for the fundamental valuation of the stock, and that they have a short term approach to profits. This should be confirmed with further research.

Key words: Initial public offerings, book building, auctions, new issues, primary markets.