Zoekopdracht: faculteit: "FEB" en publicatiejaar: "2006"

AuteurN. Boon
TitelThe influence of offering mechanisms on underpricing during IPOs.
BegeleiderL. Zou
FaculteitFaculteit Economie en Bedrijfskunde
SamenvattingThis paper evaluated to what extent the offering mechanism used during IPOs influences the amount of underpricing. On the one hand, there is evidence that the amount of underpricing is significantly related to the offering mechanism used during the IPO process. The auction method results in a significantly lower amount of underpricing. In addition, it is shown that both the bookbuilding and the fixed price method result in a higher amount of underpricing. On the other hand, one should not underestimate the reasons for still opting for the suboptimal bookbuilding method. The two most important arguments to prefer the seemingly suboptimal - in terms of underpricing - bookbuilding method are the following. First, the issuing company prefers to have influence on the share distribution among the different sorts of shareholders. Typically, issuing companies try to limit the share in hands of hedge funds or even worse, hostile hands. The second argument enlightens the power of underwriting. When investment banks underwrite a certain issue, both the revenue and the amount of shares sold is certain. With the auction method this stays uncertain. Clearly, issuing companies prefer to pay in the form of underpricing in exchange for more certainty. Even though it is apparent that the amount of underpricing during IPOs is influenced by the applied offering mechanism, their role should be considered in perspective. Government interference, firm specific risk and the time at which a fixed price is set determine the amount of underpricing as well. Next to that, there can be a less direct underlying factor causing the amount of underpricing. It can be used as a way of avoiding taxes for example, or as a way of increasing the chance that the desired amount of shares will be sold in the market. Overall, it is obvious that offering mechanisms do influence the amount of underpricing during IPOs. However, issuing companies seem to consider the underpricing itself in a broader perspective. In practice, this often leads to bearing a certain amount of underpricing in exchange for gains in other fields. When looking purely to underpricing and offering mechanisms as a causal factor of this, it can be concluded that the offering mechanisms have only relatively modest influence.
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