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Auctioned IPOs: The U.S. Evidence

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Author Info

  • François DEGEORGE

    (University of Lugano and Swiss Finance Institute)

  • François DERRIEN

    (HEC Paris)

  • Kent L. WOMACK

    (Tuck School of Business, Dartmouth College)

Abstract

Between 1999 and 2007, WR Hambrecht has completed 19 IPOs in the U.S. using an auction mechanism. We analyze investor behavior and mechanism performance in these auctioned IPOs using detailed bidding data. The existence of some bids posted at high prices suggests that some investors (mostly retail) try to free-ride on the mechanism. But institutional demand in these auctions is very elastic, suggesting that institutional investors reveal information in the bidding process. Investor participation is largely predictable based on deal size, and demand is dominated by institutions. Flipping is equally prevalent in auctions as in bookbuilt deals – but unlike in bookbuilding, investors in auctions tend to flip their shares more in cold deals. Finally, we find that institutional investors, who provide more information, are rewarded by obtaining a larger share of the deals that have higher initial returns. Our results therefore suggest that auctioned IPOs could be an effective alternative to traditional bookbuilding.

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Bibliographic Info

Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 08-38.

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Length: 53 pages
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Handle: RePEc:chf:rpseri:rp0838

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Web page: http://www.SwissFinanceInstitute.ch
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Related research

Keywords: Initial public offerings; investment banking; auctions;

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References

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Cited by:
  1. Schnitzlein, Charles R. & Shao, Minjie, 2013. "Capacity constraints and the winner's curse in multi-unit common value auctions," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(2), pages 188-201.
  2. Neupane, Suman & Poshakwale, Sunil S., 2012. "Transparency in IPO mechanism: Retail investors’ participation, IPO pricing and returns," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 2064-2076.

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