Is the Dutch Auction IPO a Good Idea?
Anita I. Anand
University of Toronto - Faculty of Law
September 1, 2005
Yale Law & Economics Research Paper No. 320
The Google IPO raised the question of whether Dutch auctions are preferable to the traditional bookbuilding method of financing. Some argue that Dutch auctions make public offerings more efficient in terms of price discovery by leaving less money on the table. They further argue that Dutch auctions are more fair, since underwriters do not allocate securities to preferred clients, thereby allowing for a more equitable allocation among institutional and retail investors. I suggest that the Dutch auction is not necessarily more fair and may in fact lead to less efficient capital markets. I argue that reform of the current system is unnecessary because of capital market composition and, in particular, the means by which a majority of retail shareholders invest in securities.
Number of Pages in PDF File: 42
Keywords: IPO, auction, bookbuilding, shareholders, Google
JEL Classification: G3, K00, K22, L20
Date posted: September 5, 2005