Preplay Communication, Participation Restrictions, and Efficiency in Initial Public Offerings

The extent to which the observed procedures for selling new issues are efficient is studied. We show that a posted-price mechanism, in conjunction with nonbinding preplay communication and participation restrictions, leads to an allocation of the security (and payment) that maximizes the seller's expected revenue, given the informational constraints imposed by the optimizing incentives of the potential buyers. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.