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Competitive IPOs

Author

Listed:
  • Tim Jenkinson
  • Howard Jones

Abstract

Competition between investment banks for lead underwriter mandates in IPOs is fierce, but having committed to a particular bank, the power of the issuer is greatly reduced. Although information revelation theories justify giving the underwriters influence over pricing and allocation, this creates the potential for conflicts of interest. In this clinical paper we analyse an interesting innovation that has been used in recent European IPOs whereby issuers separate the preparation and distribution roles of investment banks, and keep competitive pressure on the banks throughout the issue process. These 'competitive IPOs' allow the issuer greater control and facilitate more contingent fee structures that help to mitigate against 'bait and switch'. But unlike more radical departures from traditional bookbuilding - such as auctions - the competitive IPO is an incremental market-based response to potential conflicts of interest that retains many of the advantages of investment banks' active involvement in issues.

Suggested Citation

  • Tim Jenkinson & Howard Jones, 2009. "Competitive IPOs," Economics Series Working Papers 2009-FE-01, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:2009-fe-01
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    Cited by:

    1. Wolfgang Bessler & Matthias Stanzel, 2009. "Conflicts of Interest and Research Quality of Affiliated Analysts in the German Universal Banking System: Evidence from IPO Underwriting," European Financial Management, European Financial Management Association, vol. 15(4), pages 757-786, September.
    2. Jeon, Jin Q. & Lee, Cheolwoo & Nasser, Tareque & Via, M. Tony, 2015. "Multiple lead underwriter IPOs and firm visibility," Journal of Corporate Finance, Elsevier, vol. 32(C), pages 128-149.
    3. Juyoun Ryoo & Cheolwoo Lee & Jin Q Jeon, 2020. "Sustainability of Analyst Recommendations in Multiple Lead Underwriter IPOs," Sustainability, MDPI, vol. 12(5), pages 1-36, March.
    4. Almeida, Vinicio de Souza e & Leal, Ricardi Pereira Câmara, 2015. "Análise experimental conjunta do comportamento do investidor em IPOs," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 55(1), January.
    5. Martijn J. Assem & Nico L. Sar & Philippe Versijp, 2017. "CEOs and CFOs on IPOs: The Process and Success of Going Public," De Economist, Springer, vol. 165(4), pages 381-410, December.
    6. Hidenori Takahashi, 2018. "Affiliation ties and underwriter selection," Small Business Economics, Springer, vol. 50(2), pages 325-338, February.
    7. Silva, Wesley Mendes da & Costa Júnior, Newton C. A. da & Barros, Lucas Ayres & Armada, Manuel Rocha & Norvilitis, Jill M., 2015. "Behavioral finance: advances in the last decade," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 55(1), January.

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    Keywords

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    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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