Why the Google IPO Might Stay Exotic - An Experimental Analysis of Offering Mechanisms

Trauten, Andreas; Langer, Thomas

doi:10.2139/ssrn.1003218

Cited by 1 publication

(3 citation statements)

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“…They note that the main problem of the auction is that its sole criterion for allocation is the price. Trauten and Langer (2008) employ experiments and sustain that there is room for the underwriters discretionary power in the allocation of IPO shares.…”

Section: Wilhelmmentioning

confidence: 99%

“…, Trauten and Langer (2008), Zhang (2006 and Bonini and Voloshyna (2009) present theoretical and empirical experimental analyses about the usual methods and propose alternatives to mitigate the problems of book building, the most common method. We test three pricing methods jointly under the same simulated environment: book building, the Dutch clock auction, and the competitive IPO, a relatively new method.…”

Section: Introductionmentioning

confidence: 99%

“…We compare three methods jointly, employ the same environment to analyze all the three methods, employ more subjects per method and include bank professionals as subjects. Trauten and Langer (2008) and Zhang (2006Zhang ( , 2009 compare the fixed price method to an auction.…”

Section: Introductionmentioning

confidence: 99%

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A Joint Experimental Analysis of the Dutch Auction, Book Building and Competitive IPO Pricing Methods

Almeida

Leal²

2011

SSRN Journal

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We examine the differences of three IPO pricing methods jointly: book building, employed worldwide, the Dutch clock auction, routinely cited as an alternative to book building, and the competitive IPO, a recent innovation, tested in a few offers in Europe. We employ experiments with South American subjects who are bank professionals or business students. The main result is the characterization of book building as a pricing method that mostly benefits the investor at the expense of the issuer and the selling shareholders. The competitive IPO, on the other hand, was the method that gave the best results for the issuer and selling shareholders, at the expense of investors. The competitive IPO, however, showed more dispersion of initial returns and evidence of the "bait-and-switch" strategy, which may be disguised in book building offers but is clearly exposed in the competitive IPO. Issuers could benefit from regulation or private contracting that favor the competitive IPO if its procedure discourages "baiting-and-switching". Moving towards the competitive IPO may not be in the interest of underwriters and their clients. Almeida and Leal will attend the meeting and Almeida will present the paper. 2 A Joint Experimental Analysis of the Dutch Auction, Book Building and Competitive IPO Pricing Methods AbstractWe examine the differences of three IPO pricing methods jointly: book building, employed worldwide, the Dutch clock auction, routinely cited as an alternative to book building, and the competitive IPO, a recent innovation, tested in a few offers in Europe. We employ experiments with South American subjects who are bank professionals or business students. The main result is the characterization of book building as a pricing method that mostly benefits the investor at the expense of the issuer and the selling shareholders. The competitive IPO, on the other hand, was the method that gave the best results for the issuer and selling shareholders, at the expense of investors. The competitive IPO, however, showed more dispersion of initial returns and evidence of the "bait-and-switch" strategy, which may be disguised in book building offers but is clearly exposed in the competitive IPO. Issuers could benefit from regulation or private contracting that favor the competitive IPO if its procedure discourages "baiting-and-switching". Moving towards the competitive IPO may not be in the interest of underwriters and their clients.

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Section: Wilhelmmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%