IPO MECHANISMS: A COMPARISON OF BOOK-BUILDING, DISCRIMINATORY PRICE AUCTIONS AND UNIFORM PRICE AUCTIONS

Abstract

Using data from the U.S., Japan and Israel, we test two hypotheses suggested by theory regarding the comparison of book-building and auction IPO mechanisms. Our results are inconsistent with both hypotheses. We find that underpricing is higher under book-building than under auctions, even after attempting to control for market conditions, firm size, lead underwriter and information gathered. We also find that higher underpricing is associated with less pricing accuracy in the U.S. and that U.S. IPO aftermarket prices are less accurate than Japanese prices, using both aftermarket volatility and long run returns as indicators of accuracy.

Citation

Beierlein, J. and Kiyoshi Kato, H. (2003), "IPO MECHANISMS: A COMPARISON OF BOOK-BUILDING, DISCRIMINATORY PRICE AUCTIONS AND UNIFORM PRICE AUCTIONS", Choi, J.J. and Hiraki, T. (Ed.) The Japanese Finance: Corporate Finance and Capital Markets in ... (International Finance Review, Vol. 4), Emerald Group Publishing Limited, Leeds, pp. 135-152. https://doi.org/10.1016/S1569-3767(03)04007-X