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The equilibrium prices of auction IPO securities: Empirical evidence

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  • Petkevich, Alex
  • Samdani, Taufique

Abstract

We empirically show that the auction IPO share price is the equilibrium outcome of a sequential game between promoters and institutional investors. In this game, promoters’ utility for information production and their utility for price stability are higher (lower) than their utility for IPO proceeds when they retain a large (small) fraction of the firm’s equity. Conversely, institutional investors always produce information and their utility for underpricing, which is inversely related to return volatility, is higher (lower) in lottery (pro-rata) IPOs. The findings provide new evidence on the economic roles of promoters and institutional investors in the auction IPO market.

Suggested Citation

  • Petkevich, Alex & Samdani, Taufique, 2022. "The equilibrium prices of auction IPO securities: Empirical evidence," Journal of Financial Markets, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finmar:v:57:y:2022:i:c:s1386418121000112
    DOI: 10.1016/j.finmar.2021.100629
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    Cited by:

    1. Ranganathan, Kavitha & Veeraraghavan, Madhu, 2023. "Pre-and-aftermarket IPO underpricing: Does use of proceeds disclosure matter?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(3).
    2. Samdani, Taufique, 2024. "Disclosure rules, controlling shareholders, and trading activity in the new issues market," Journal of Banking & Finance, Elsevier, vol. 163(C).

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    More about this item

    Keywords

    Auctions; Lotteries; IPOs; Underpricing; Promoters; Institutional investors;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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