Auctioned IPOs: The U.S. Evidence
50 Pages Posted: 9 Oct 2009 Last revised: 9 Mar 2013
Between 1999 and 2007, WR Hambrecht 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 10-day underpricing. Our results therefore suggest that auctioned IPOs could be an effective alternative to traditional bookbuilding.
Keywords: initial public offerings, investment banking, auctions
JEL Classification: G24, G32
Suggested Citation: Suggested Citation