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Information diversification prior to an IPO ∗

By Sylvain Bourjade


Unseasonned shares are sold through the book building process using information gathered by institutional investors during the road show. Issuers are often interested not only in the proceeds but olso in pricing more accurately the shares. I study the optimal direct mechanism and its implementation within this framework when information is multidimensional. I then give conditions under which diversification of information is more profitable than specialization in only one domain of expertise for some values of theparameters.Onehaveanambiguouseffectontheprofits. Intuitively, if the gain in informational efficiency compensate the loss in the proceeds of the IPO, (due to more underpricing), the profit of the seller may be higher with the diversification of the domains of expertise than in the specialization in only one domain of expertise. Moreover, the region of diversification is extended when the value of information, the probability that this information exists, and the probability that this information is good, increase. I then extend the model to the case in which investors are experts in all dimensions of the asset, but can only gather information in one of these dimensions

Year: 2003
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