The healthiness of IPO market lays the foundation of a healthy financial market. Two mainstream methods for IPO are book-building and auction. Most existing literature believe that auction is superior in price discovery and efficiency; nevertheless, in reality the book-building has taken the lead and is chosen by more capital markets. In this paper, we build a signaling model to characterize the decision-making process of investment banks in the IPO process. We use global signals to model the information structure of IPO, and analyze the incentive of investment bank and its further implication on investors’ decisions and underpricing. Our results show that the only PBE of the model that satisfies divinity criterion is a pooling equilibrium in which every investment bank chooses the book-building method. We conduct empirical simulations and tests to show that underpricing is negatively related to the coverage of the road show and the accuracy of the information provided by the investment bank. We propose an alternative IPO mechanism that combines the information advantage of book-building method and the low underpricing of auction method, so as to better serve the capital market as well as the real economy.