Why Don't Issuers Choose IPO Auctions? The Complexity of Indirect Mechanisms
AbstractIn this paper we present a comprehensive comparison of IPO placement methods in over 50 countries. We find that out of the three primary methods, fixed price public offers, auctions, and book building, auctions are least popular with issuers. Since auctions allow for price discovery while avoiding the potential conflict of interest between issuer and underwriter, this is a surprising finding that is not adequately explained in the existing literature. We propose a new explanation: namely, that participating in auctions is substantially more difficult for investors compared to the other methods, and that this complexity can lead to investor behavior that is undesirable for the issuer. We suggest that this effect could be mitigated through a hybrid mechanism that resembles the one that is used in US treasury auctions.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16214.
Date of creation: Jul 2010
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Find related papers by JEL classification:
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- G0 - Financial Economics - - General
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G3 - Financial Economics - - Corporate Finance and Governance
- H0 - Public Economics - - General
- H10 - Public Economics - - Structure and Scope of Government - - - General
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
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