Auctioned IPOs: The U.S. Evidence

F. Degeorge, F. Derrien, K.L. Womack

Research output: Working paperDiscussion paperOther research output

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Abstract

Between 1999 and 2007, WR Hambrecht has completed 19 IPOs in the U.S. using an auction mechanism. We analyze investor behavior and mechanism performance in these auctioned IPOs using detailed bidding data. The existence of some bids posted at high prices suggests that some investors (mostly retail) try to free-ride on the mechanism. But institutional demand in these auctions is very elastic, suggesting that institutional investors reveal information in the bidding process. Investor participation is largely predictable based on deal size, and demand is dominated by institutions. Flipping is equally prevalent in auctions as in bookbuilt deals – but unlike in bookbuilding, investors in auctions tend to flip their shares more in cold deals. Finally, we find that institutional investors, who provide more information, are rewarded by obtaining a larger share of the deals that have higher initial returns. Our results therefore suggest that auctioned IPOs could be an effective alternative to traditional bookbuilding.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages52
Volume2009-37 S
Publication statusPublished - 2009

Publication series

NameCentER Discussion Paper
Volume2009-37 S

Fingerprint

Auctions
Investors
Bookbuilding
Institutional investors
Bidding
Retail
Bid
Participation
Investor behavior

Keywords

  • Initial public offerings
  • investment banking
  • auctions

Cite this

Degeorge, F., Derrien, F., & Womack, K. L. (2009). Auctioned IPOs: The U.S. Evidence. (CentER Discussion Paper; Vol. 2009-37 S). Tilburg: Finance.
Degeorge, F. ; Derrien, F. ; Womack, K.L. / Auctioned IPOs : The U.S. Evidence. Tilburg : Finance, 2009. (CentER Discussion Paper).
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Degeorge, F, Derrien, F & Womack, KL 2009 'Auctioned IPOs: The U.S. Evidence' CentER Discussion Paper, vol. 2009-37 S, Finance, Tilburg.

Auctioned IPOs : The U.S. Evidence. / Degeorge, F.; Derrien, F.; Womack, K.L.

Tilburg : Finance, 2009. (CentER Discussion Paper; Vol. 2009-37 S).

Research output: Working paperDiscussion paperOther research output

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AU - Derrien, F.

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N2 - Between 1999 and 2007, WR Hambrecht has completed 19 IPOs in the U.S. using an auction mechanism. We analyze investor behavior and mechanism performance in these auctioned IPOs using detailed bidding data. The existence of some bids posted at high prices suggests that some investors (mostly retail) try to free-ride on the mechanism. But institutional demand in these auctions is very elastic, suggesting that institutional investors reveal information in the bidding process. Investor participation is largely predictable based on deal size, and demand is dominated by institutions. Flipping is equally prevalent in auctions as in bookbuilt deals – but unlike in bookbuilding, investors in auctions tend to flip their shares more in cold deals. Finally, we find that institutional investors, who provide more information, are rewarded by obtaining a larger share of the deals that have higher initial returns. Our results therefore suggest that auctioned IPOs could be an effective alternative to traditional bookbuilding.

AB - Between 1999 and 2007, WR Hambrecht has completed 19 IPOs in the U.S. using an auction mechanism. We analyze investor behavior and mechanism performance in these auctioned IPOs using detailed bidding data. The existence of some bids posted at high prices suggests that some investors (mostly retail) try to free-ride on the mechanism. But institutional demand in these auctions is very elastic, suggesting that institutional investors reveal information in the bidding process. Investor participation is largely predictable based on deal size, and demand is dominated by institutions. Flipping is equally prevalent in auctions as in bookbuilt deals – but unlike in bookbuilding, investors in auctions tend to flip their shares more in cold deals. Finally, we find that institutional investors, who provide more information, are rewarded by obtaining a larger share of the deals that have higher initial returns. Our results therefore suggest that auctioned IPOs could be an effective alternative to traditional bookbuilding.

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Degeorge F, Derrien F, Womack KL. Auctioned IPOs: The U.S. Evidence. Tilburg: Finance. 2009. (CentER Discussion Paper).