Auctioned IPOs: The U.S. Evidence

F. Degeorge, F. DERRIEN, K. Womack

Journal of Financial Economics

novembre 2010, vol. 98, n°2, pp.177-194

Départements : Finance, GREGHEC (CNRS)

accepté le 29 juillet 2009Between 1999 and 2007, WR Hambrecht completed 19 initial public offerings (IPOs) in the US 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 at most as prevalent in auctions as in bookbuilt deals. But, unlike in bookbuilding, investors in auctions do not flip their shares more in 'hot' deals. Finally, we find that institutional investors, who provide more information, are rewarded by obtaining a larger share of the deals that have higher ten-day underpricing. Our results therefore suggest that auctioned IPOs can be an effective alternative to traditional bookbuilding.Keywords: Initial public offerings; Investment banking; Auctions