Structuring the Initial Offering: Who to Sell to and How to Do it

44 Pages Posted: 7 Apr 2004

See all articles by Vojislav Maksimovic

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business

Pegaret Pichler

Northeastern University, D’Amore-McKim School of Business, Finance Area

Date Written: March 2004

Abstract

This paper shows how the owner of a nonpublic firm, who wishes to maximize revenue from the sale of shares, should structure the sale. We develop a unified model of adverse selection in the retail market and mechanism design for information gathering that enables us to determine the optimal amount of information gathering before setting the issue price. We show that the need to induce truthtelling does not, without allocation restrictions, lead to underpricing when bookbuilding is conducted prior to an initial public offering. We obtain a number of new empirical predictions relating the information gathering decision and underpricing to characteristics of the bookbuilding process and issue characteristics such as issue size and uncertainty about share value.

Keywords: Mechanism design, IPOs

Suggested Citation

Maksimovic, Vojislav and Pichler, Pegaret, Structuring the Initial Offering: Who to Sell to and How to Do it (March 2004). Available at SSRN: https://ssrn.com/abstract=523342 or http://dx.doi.org/10.2139/ssrn.523342

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business ( email )

Van Munching Hall
College Park, MD 20742-1815
United States
301-405-2125 (Phone)
301-314-9157 (Fax)

HOME PAGE: http://scholar.rhsmith.umd.edu/vmax/home

Pegaret Pichler (Contact Author)

Northeastern University, D’Amore-McKim School of Business, Finance Area ( email )

Boston, MA 02115
United States

HOME PAGE: http://www.northeastern.edu/pegaretpichler

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
297
Abstract Views
1,779
Rank
186,916
PlumX Metrics