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Competitive IPOs

Author

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  • 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," OFRC Working Papers Series 2009fe01, Oxford Financial Research Centre.
    • Handle: RePEc:sbs:wpsefe:2009fe01
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    References listed on IDEAS

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    1. Nanda, Vikram & Yun, Youngkeol, 1997. "Reputation and Financial Intermediation: An Empirical Investigation of the Impact of IPO Mispricing on Underwriter Market Value," Journal of Financial Intermediation, Elsevier, vol. 6(1), pages 39-63, January.
    2. Wallace N. Davidson & Biao Xie & Weihong Xu, 2006. "IPO Placement Risk and the Number of Co‐Managers," The Financial Review, Eastern Finance Association, vol. 41(3), pages 405-418, August.
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    4. Tim Jenkinson & Howard Jones, 2009. "IPO Pricing and Allocation: A Survey of the Views of Institutional Investors," The Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1477-1504, April.
    5. Ritter, Jay R. & Zhang, Donghang, 2007. "Affiliated mutual funds and the allocation of initial public offerings," Journal of Financial Economics, Elsevier, vol. 86(2), pages 337-368, November.
    6. Sherman, Ann E., 2005. "Global trends in IPO methods: Book building versus auctions with endogenous entry," Journal of Financial Economics, Elsevier, vol. 78(3), pages 615-649, December.
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    12. repec:bla:jfinan:v:59:y:2004:i:5:p:2309-2338 is not listed on IDEAS
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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. 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.
    3. 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.
    4. 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.
    5. Hidenori Takahashi, 2018. "Affiliation ties and underwriter selection," Small Business Economics, Springer, vol. 50(2), pages 325-338, February.
    6. 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.
    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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    More about this item

    Keywords

    IPO; bookrunners; syndicates; underpricing;
    All these keywords.

    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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