Ipos With Buy and Sell-Side Information Production: The Dark Side of Open Sales

Posted: 22 Apr 2004 Last revised: 20 Oct 2007

See all articles by Chris Yung

Chris Yung

University of Virginia - McIntire School of Commerce

Abstract

The proposed model, by incorporating both 1) banker screening of new issues and 2) costly evaluation by investors, is the first to admit endogenous double-sided information production. It demonstrates a nontrivial link between these two sides: the banker wishes to structure a sale conducive to investor research because selling to an uninformed pool would result in his own shirking. One application of this paradigm indicates that, contrary to the findings of most IPO models, larger investor pools are not always better. This result resolves the participation restriction puzzle of why bankers do not open sales to all bidders even when doing so would maximize competition and reduce underpricing.

Keywords: IPO, Auction, Bookbuilding

Suggested Citation

Yung, Chris, Ipos With Buy and Sell-Side Information Production: The Dark Side of Open Sales. Review of Financial Studies, Vol. 18, 327-347, 2005. Available at SSRN: https://ssrn.com/abstract=531242

Chris Yung (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-242-0836 (Phone)

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