Date of Submission
Open Access Senior Thesis
Bachelor of Arts
© 2015 Gabriel A Ayala
In 1998, the Philippines introduced book-building pricing mechanisms for Initial Public Offerings. Almost all capital raised through IPOs in the Philippines is done using a book-building pricing method, however a significant number of IPOs still occur using non-book-building methods. Understanding why book-building has become the dominant pricing mechanism but yet non-book-building methods still survive is the aim of this paper. I find that unlike other countries where the introduction of book-building leads to higher total issue costs for individual issuers and unlike theory which suggests the increased effort of book-building should come with increased costs, IPOs that use book-built pricing in the Philippines actually have a lower total issue cost as a percentage of the total issue size compared to issuers who use non-book-building methods. This being the case, explaining why non-book-built IPOs still occur is even more interesting. I find that the large variance in size and the low volume of IPOs in the Philippines creates a bifurcated market where it is uneconomical for underwriters to use book-building to service small firms who want to IPO. The harder phenomenon to explain is the choice by firms who are large enough to book-build to use non-book-built methods. I suggest that the developing sophistication of the local market as well as the relationship driven aspect of business in the Philippines are two possible explanations.
Ayala, Gabriel A., "The Price is Book-built: The Decision to Use Book-building Pricing Mechanisms for IPOs in the Philippines" (2016). CMC Senior Theses. 1284.