Do Investors Flip Less in Bookbuilding than in Auction IPOs?

Posted: 9 Nov 2017

See all articles by Suman Neupane

Suman Neupane

Griffith University - Department of Accounting, Finance and Economics

Andrew P. Marshall

University of Strathclyde - Strathclyde Business School

Krishna Paudyal

Independent

Chandra Thapa

University of Strathclyde

Date Written: November 7, 2017

Abstract

Using a regime change setting, this paper examines whether investors flip less in bookbuilding than in auction initial public offerings (IPOs). Based on bookbuilding theory, we posit that the ability to control allocation flexibility in the bookbuilding mechanism should enable underwriters to avoid flippers and target long-term investors. Consistent with this prediction, we find that both frequent and non-frequent investors flip significantly less in bookbuilding IPOs. We also find that the influence of underwriter reputation is stronger in the bookbuilding regime, with frequent investors flipping considerably less in IPOs that are managed by high reputation underwriters in bookbuilding IPOs compared to auction IPOs. The results highlight the benefits of allocation discretion, which allows underwriters to influence investors' behavior as well as use non-bid information in the IPO process. Finally, we examine the implications of flipping and find that although flipping increases liquidity, it contributes to stock price volatility and causes downward pressure on the stock price.

Keywords: Flipping, Bookbuilding, Auction, IPO, Indian IPOs, Allocation discretion

JEL Classification: G24, G32

Suggested Citation

Neupane, Suman and Marshall, Andrew P. and Paudyal, Krishna N. and Thapa, Chandra, Do Investors Flip Less in Bookbuilding than in Auction IPOs? (November 7, 2017). Journal of Corporate Finance, Vol. 47, 2017, Available at SSRN: https://ssrn.com/abstract=3066632

Suman Neupane (Contact Author)

Griffith University - Department of Accounting, Finance and Economics ( email )

170 Kessels Road
Nathan, Queensland 4111
Australia

Andrew P. Marshall

University of Strathclyde - Strathclyde Business School ( email )

100 Cathedral Street
Glasgow G4 0LN
United Kingdom
44 0141 548 3894 (Phone)

Krishna N. Paudyal

Independent ( email )

Chandra Thapa

University of Strathclyde ( email )

16 Richmond Street
Glasgow 1XQ, Scotland G1 1XQ
United Kingdom

HOME PAGE: http://https://www.strath.ac.uk/staff/thapachandradr/

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