27
which will be included in the valuation
of the offer price (Hu & Ritter,
2007). Using book built method, the price of the share could be
revised
using
the information
from
the investors.
The
price
could
be
revised
upwards,
and
then
discounted
to
induce
investor’s
valuation
and interests rather than revised downwards and then discounted,
which
would
left
more
money
on the
table
rather
than
gaining
more
capital.
Despite
its
advantages
and
many
benefits,
it
does
come
at
a
cost.
The main cost of
the book building
method
is the amount
of
effort an
underwriter
has
to exert,
in attempt
to
do
the
road
shows
for
the
investors.
Having
multiple
book-runners
also
come with
an extra cost.
The
continuing
analyst
coverage
of the
company
and
its potential
investors,
require
extra
time
and effort.
Another
disadvantage
of
book
building
involves
underpricing
in the
offer
itself.
Underpricing
still
occurs
in
book
building
since
it
is
a
required
sum
of
money
that
will
be left on the table to induce
investors
with valuable
information
to be
truthful in their indication of interest for the shares. Kaneko and
Pettway
(2003)
believes
that
in
respect
to
the
Japanese
market,
book
building is
the reason of higher underpricing
in new issues, since
issuers
need
to
lower
the
price
as an
incentive
for
the
investor’s
valuation. However, many
researchers (Benveniste &
Busaba,
1997
and
Hu
& Ritter,
2007)
have
proved
that
using
book
building
have
higher expected proceeds in the long run.
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