A View of the Dutch IPO Cathedral

Abstract:     
This is the Keynote Address for "IPOs and the Internet Age: The Case for Updated Regulations," a symposium held at The Ohio State University Michael E. Moritz College of Law. Initial public offerings ("IPOs") are an exercise in asymmetrical valuation. One mechanism for bridging these asymmetries is a private financial intermediary to conduct price discovery by meeting with preferred investors. An alternate mechanism is an auction, such as a descending-bid or Dutch procedure, to conduct price discovery by soliciting bids from all prospective investors. Recent disenchantment with the relationship between issuers and intermediaries has prompted some to hail (online) auction-based IPOs. This switch, however, incurs a variety of legal costs that may justify broader mandatory disclosure and state intervention.

The legal costs of auction-based IPOs can be gleaned from examining various international regulatory regimes. To comparatively evaluate these regimes, this article introduces a paradigmatic framework derived from the classic tri-tiered schema that Guido Calabresi and A. Douglas Melamed formulated for legal entitlements. By conceptualizing IPOs as a problem of asymmetrically-valued shares, different kinds of regulations can assume the form of property, liability, and inalienability rules. The distinctions between these rules explain variations within the regulatory schemes of France, Israel, and Taiwan, the last bastions of auction-based IPOs, and evince the legal price that must be paid for the United States to offer an auction-based alternative to bookbuilding.

Keywords: Asymmetrical Information, Auctions, Bookbuilding, Guido Calabresi, Dutch IPO, Entitlements, Inalienability, France, Israel, A. Douglas Melamed, Taiwan

JEL Classifications: B41, D23, D44, D63, G28, G38, K00, K22, K23, K42

Accepted Paper Series