A, B or C? Experimental Tests of IPO Mechanisms

41 Pages Posted: 8 Mar 2013

See all articles by Stefano Bonini

Stefano Bonini

Stevens Institute of Technology - School of Business

Olena Voloshyna

Bocconi University

Multiple version iconThere are 2 versions of this paper

Date Written: March 2013


Empirical research has provided extensive evidence on the inefficiency of bookbuilding in controlling underpricing. Both academics and practitioners have investigated this phenomenon proposing innovative offering methodologies. In this paper we explore the information revelation and underpricing properties of two baseline models, uniform auctions and bookbuilding, and two newly proposed mechanisms, Ausubel auction and Competitive IPO. Our findings confirm the empirical weaknesses of bookbuilding and provide hints that standard auctions may stimulate less bidding. However, (a) the Competitive IPO features increase competition both among banks and among investors resulting in more information revelation and less underpricing than standard bookbuilding; and (b) the Ausubel auction yields superior price discovery and underpricing outcomes than uniform clock auction and bookbuilding. Our experimental results provide novel insights into the ongoing debate on optimal equity offering mechanisms, suggesting that the solution to current issuing methodologies shortcomings may require the development of a ‘hybrid’ procedure blending properties of existing and new mechanisms.

Keywords: IPO, bookbuilding, underpricing, experiments, auctions

JEL Classification: C92, D44, G11, G24

Suggested Citation

Bonini, Stefano and Voloshyna, Olena, A, B or C? Experimental Tests of IPO Mechanisms (March 2013). European Financial Management, Vol. 19, Issue 2, pp. 304-344, 2013, Available at SSRN: https://ssrn.com/abstract=2230256 or http://dx.doi.org/10.1111/j.1468-036X.2012.00590.x

Stefano Bonini (Contact Author)

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Olena Voloshyna

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136

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