American IPOs are priced after a process of bookbuilding, during which issuers can withdraw at any time. We hypothesize that the option to withdraw reduces underpricing by strengthening the issuers' bargaining power with respect to investors. Empirical analysis reveals that underpricing is lower...

We compare two mechanisms for selling IPOs, the fixed price method and American book-building, when investors have correlated information and can observe each other's subscription decisions. In this environment, the fixed price method is a strategy that can create cascading demand....