Efficiency in IPO Issuance Processes?
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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.
A case study of Google's IPO - The advantages of online auctions may be more theoretical than real.
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Coughlan, Peter; Gates, William; Lamping, Jennifer (Monterey, California. Naval Postgraduate School, 2008); NPS-AM-08-013Since 1997, the Department of Defense (DoD) has shown increasing interest in using reverse auctions, particularly electronic reverse auctions, to purchase a wide range of products and services. The research describes ...
Coughlan, Peter; Lamping, Jennifer; Gates, William (2008-02-01); NPS-AM-08-013Since 1997, the Department of Defense (DoD) has shown increasing interest in using reverse auctions, particularly electronic reverse auctions, to purchase a wide range of products and services. The research describes ...
An empirical analysis of the efficiency of online auction IPO processes and traditional IPO processes Hensel, Nayantara (Emerald Group Publishing Limited, 2009);Purpose - The purpose of this paper is to examine whether the online auction mechanism in the USA is more effective at pricing initial public offerings (IPOs) than the traditional book building process.