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Bookbuilding versus auction selling methods: A study of US IPOs

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  • Kuntara Pukthuanthong
  • Nikhil P. Varaiya
  • Thomas J. Walker

Abstract

This study documents differences between two widely known IPO selling methods: the auction method and bookbuilding method for a sample of US IPOs. We employ a matched firm technique to compare the two IPO selling methods and empirically test hypotheses relating to the two selling methods. Our sample comprises all auction IPOs in the US between January 1999 and December 2004. Our results indicate that in comparison to matched bookbuilding IPOs, auction IPOs are less underpriced and thus leave less money on the table for the issuers, and have lower underwriter spreads. Relative to auction IPOs, bookbuilding IPOs are more likely to be followed and positively recommended by analysts and they receive more coverage by lead analysts, i.e. analysts affiliated with lead underwriters. Moreover, bookbuilding IPOs tend to outperform auction IPOs up to 18 months post-IPO, exhibit lower aftermarket volatility, and insiders of auction IPOs agree to lock up a higher fraction of their shares and hold them for a longer period of time.

Suggested Citation

  • Kuntara Pukthuanthong & Nikhil P. Varaiya & Thomas J. Walker, 2007. "Bookbuilding versus auction selling methods: A study of US IPOs," Venture Capital, Taylor & Francis Journals, vol. 9(4), pages 311-345, May.
  • Handle: RePEc:taf:veecee:v:9:y:2007:i:4:p:311-345
    DOI: 10.1080/13691060701605439
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    References listed on IDEAS

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    1. Ravi Jagannathan & Ann E. Sherman, 2006. "Why Do IPO Auctions Fail?," NBER Working Papers 12151, National Bureau of Economic Research, Inc.
    2. Francois Degeorge & Ernst Maug, 2006. "Corporate Finance in Europe: A Survey," Swiss Finance Institute Research Paper Series 06-17, Swiss Finance Institute.
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    Cited by:

    1. Lehmann, Timo & Weber, Matthias, 2021. "IPO Underpricing and Aftermarket Price Accuracy: Auctions vs. Bookbuilding in Japan," SocArXiv sa385, Center for Open Science.
    2. Timo Lehmann & Matthias Weber, 2023. "Auctions versus bookbuilding: The effects of IPO regulation in Japan," The Financial Review, Eastern Finance Association, vol. 58(1), pages 117-141, February.

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