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Why Have IPO Auctions Lost Market Share to Fixed-price Offers? Evidence from Taiwan

Journal of Financial Studies

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Title Why Have IPO Auctions Lost Market Share to Fixed-price Offers? Evidence from Taiwan
 
Creator Yenshan Hsu
Chung-Wen Hung
Cheng-Yi Shiu
 
Description This paper proposes three hypotheses based on stock market conditions to explain how Taiwanese issuers’choice over IPO auctions or fixed-price offers: the risk-averse issuer hypothesis, the pricing conflict hypothesis, and the demand inelasticity of stocks hypothesis. The risk-averse issuer hypothesis asserts that the relative risk level of auctions increases as the market becomes more volatile, and so risk-averse issuers will avoid an auction. We find support for this hypothesis. The pricing conflict hypothesis posits that Taiwanese IPO auctions sometimes serve as a mechanism to resolve the pricing conflict between issuers and underwriters. We argue that a pricing conflict likely arises when the initial returns of recent IPOs have increased and/or the market returns have remained unchanged or have declined. We find some weak support for this hypothesis. The demand inelasticity of stocks hypothesis predicts that large IPOs are more likely to be floated with an IPO auction so as to reduce under-pricing pressure. We find strong support for this hypothesis.
Key words: IPOs, under-pricing, fixed-price offers, hybrid auctions
 
Publisher Journal of Financial Studies
財務金èžå­¸åˆŠ
 
Date 2011-03-10
 
Type —
 
Format application/pdf
 
Identifier http://www.jfs.org.tw/index.php/jfs/article/view/2011066
 
Source Journal of Financial Studies; Vol 17, No 3 (2009); 1
財務金èžå­¸åˆŠ; Vol 17, No 3 (2009); 1
 
Language —