Efficiency in IPO Issuance Processes?
Loading...
Authors
Hensel, Nayantara
Subjects
Advisors
Date of Issue
2005-10
Date
Publisher
Language
Abstract
Is the online auction an efficient mechanism for pricing initial public offerings (IPOs)? Its intent was to minimize first day price surges in IPOs, which represented "money left on the table" for issuers. Evidence from Gooogle's IPO suggests that the online auction process may not have minimized the fiirst day price surge, since 82 percent of the IPOs issued in 2004 using the traditional process experienced less of an increase. Furthermore, a comparison of auction IPOs with traditional IPOs issued in the same year and in the same three digit SIC code suggests that 44 percent of the auction IPOs have greater first day price surges than their traditional counterparts. A broader comparison of the pricing behavior of auction IPOs with traditional IPOs presents a mixed picture and suggests that the size of underwriter may be an important factor. The mispricing that occurs in auctions may be due to an informational asymmetry on the part of small investors. This informational gap could arise because small investors lack access to the information sources that institutional investors have or because companies are not required to provide detailed information in the online process, inasmuch as they don't undergo the rigorous scrutiny of investment banks in the traditional bookbuilding process. This informational gap may be alleviated by the SEC reforms of the "quiet period" and by the issuer providing more detailed information on the uses of the funds.
Type
Article
Description
A case study of Google's IPO - The advantages of online auctions may be more theoretical than real.
Series/Report No
Department
Identifiers
NPS Report Number
Sponsors
Funding
Format
Citation
Business Economics, October 2005
Distribution Statement
Rights
This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.