6
The
nature
of marketing
methods
between
fixed
price
and
book
building
are
quite
different
in their
mechanism
to
determine
the
offer
price
of the
shares.
The
main
difference between the marketing
methods
is the “price discovery” (Busaba & Chang,
2002).
Issuers,
who
chose
fixed
price,
let
the price
discovery
take
place
in the
aftermarket,
since
they
did
not
find
out
investor’s
demand
before
setting
the
offer
price.
Book
building
method
allows
the
price
discovery before setting
the
offer
price.
In
fixed
price
method, the
appointed
investment
bank
and
issuer will
set
a
price
based
on
the
projection
of
the
company’s
performance,
without
any
valuation
from
inventors
(Benveniste
&
Busaba,
1997).
While
in
book
building
method,
it
involves
road
shows
or
pre-marketing
effort
to
potential
investors
to
acquire
information
from
them
about the
value of
the
shares and
they
will
include
investors’
valuation
towards
the setting of the offer price (Busaba & Chang, 2002).
Between
the
marketing
methods
in
pricing
IPOs,
they
have
very
different
nature
in
the
strategies.
Fixed
price
method
determined
a
single
price
between
the
agreement
of
the
issuer
and
the
underwriter. Book
Building
method
uses
the
market’s
knowledge
and
dynamics,
such
as
potential
investors,
in
order
to
find
the
price
and
valuation
of the
IPO
(Benveniste
& Busaba,
1997).
One
of
the
reasons
that
book-
building
method
has
gained
more popularity
is
due
to
the
fact
that
they can
improve
their prices for the IPO before it is offered (Hu & Ritter, 2007).
Book
building method, determined a
range
of
price
that
was
agreed
between the
issuer
and
the
underwriter.
After
deciding
on
the
price
range,
underwriters
will
do
road shows to
potential
investors,
to
find out
the
demand
of
the
shares and
to
arouse
investors
to
reveal
any
information
or
any
interest
that
could
be
aggregated
to
the
offer price. Road shows main purpose is to publicize the offering of the shares.
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