Auctioned IPOs: The U.S. Evidence

52 Pages Posted: 5 Jan 2009 Last revised: 9 Mar 2013

See all articles by Francois Degeorge

Francois Degeorge

University of Lugano - Faculty of Economics; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

François Derrien

HEC Paris - Finance Department

Kent L. Womack

University of Toronto - Rotman School of Management (Deceased)

Multiple version iconThere are 3 versions of this paper

Date Written: November 1, 2008

Abstract

Between 1999 and 2007, WR Hambrecht has 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 initial returns. 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

Degeorge, Francois and Derrien, François and Womack, Kent L., Auctioned IPOs: The U.S. Evidence (November 1, 2008). Swiss Finance Institute Research Paper No. 08-38; Tuck School of Business Working Paper No. 2009-61; European Banking Center Discussion Paper No. 2009-08S; CentER Discussion Paper No. 2009-37S. Available at SSRN: https://ssrn.com/abstract=1323259 or http://dx.doi.org/10.2139/ssrn.1323259

Francois Degeorge

University of Lugano - Faculty of Economics ( email )

via Giuseppe Buffi 13
CH-6904 Lugano
Switzerland
41 58 666 4634 (Phone)
41 58 666 4647 (Fax)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

François Derrien

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
33 1 39 67 72 98 (Phone)

HOME PAGE: http://www.hec.fr/derrien

Kent L. Womack (Contact Author)

University of Toronto - Rotman School of Management (Deceased)

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