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Auctioned IPOs: The U.S. Evidence

Author

Listed:
  • 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.

Suggested Citation

  • François DEGEORGE & François DERRIEN & Kent L. WOMACK, 2008. "Auctioned IPOs: The U.S. Evidence," Swiss Finance Institute Research Paper Series 08-38, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp0838
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    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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