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Optimal Rationing in IPOs with Risk Averse Institutional Investors

Author

Listed:
  • Moez Bennouri

    (HEC, CREF, CIRANO, (Montréal))

  • Sonia Falconieri

    (Tilburg University)

Abstract

Using a mechanism design approach, we derive endogenously the optimal IPO mechanism when institutional investors are risk averse. We show that the optimal allocation rule is such that all the institutional investors with sufficiently good information are allocated a positive quantity of shares which is increasing in the quality of the their information. Additionally, we also derive the optimal rationing scheme which is uniform, i.e. all institutional investors are rationed by the same amount of shares.

Suggested Citation

  • Moez Bennouri & Sonia Falconieri, 2005. "Optimal Rationing in IPOs with Risk Averse Institutional Investors," Rivista di Politica Economica, SIPI Spa, vol. 95(4), pages 3-29, July-Augu.
    • Handle: RePEc:rpo:ripoec:v:95:y:2005:i:4:p:3-29
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    References listed on IDEAS

    as
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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G2 - Financial Economics - - Financial Institutions and Services

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