Who Makes the Choice on IPO Underwriting Methods? Issuers vs. Underwriters

Financial Management, Forthcoming

51 Pages Posted: 18 Nov 2014 Last revised: 13 Oct 2015

See all articles by Hsuan‐Chi Chen

Hsuan‐Chi Chen

University of New Mexico - Anderson School of Management

Sheng-Ching Wu

Da-Yeh University

Date Written: December 1, 2014

Abstract

We develop a measure of the expected net wealth gains of pre-IPO shareholders to explain the decision-making process of IPO issuers in selecting an underwriting method. Using unique Taiwanese IPO features, this investigation tests whether the underwriters control the issue method choice (the expected revenue collection hypothesis) or whether the issuers make the choice for the best interests of the pre-IPO shareholders (the expected net wealth gain hypothesis). We find evidence that the choice in the issue method is consistent with maximizing pre-IPO shareholders’ expected net wealth gains; no evidence exists that the IPO subscription revenues to the underwriters drive the choice. The findings suggest that most IPO issuers do not choose auctions. We accordingly offer insight into the important issue of IPO auction demise; however, this evidence cannot completely explain the total disappearance of auctions in many countries.

Keywords: Initial public offerings (IPOs), Fixed price public offer, Auction

JEL Classification: G24, G32

Suggested Citation

Chen, Hsuan-Chi and Wu, Sheng-Ching, Who Makes the Choice on IPO Underwriting Methods? Issuers vs. Underwriters (December 1, 2014). Financial Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2526329 or http://dx.doi.org/10.2139/ssrn.2526329

Hsuan-Chi Chen (Contact Author)

University of New Mexico - Anderson School of Management ( email )

1924 Las Lomas NE
Albuquerque, NM 87131
United States

HOME PAGE: http://www.mgt.unm.edu/faculty/directoryArea.asp#FIN

Sheng-Ching Wu

Da-Yeh University ( email )

No.168, University Rd., Dacun
Changhua, 51591
Taiwan

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