With the spread of U.S.-style book building, auctions have become less popular as IPO pricing mechanisms in the world. Does book building provide a better mechanism for issuing firms than auctions? Japan provides an interesting laboratory to compare investor-priced IPOs using price-competitive auctions with those of underwriter-priced IPOs using book building. Our analysis finds that, after controlling for ex ante uncertainty variables and other issue and company variables, the initial returns of book building IPOs are significantly higher than those of auctions, especially during hot markets. IPO firms "left more money on the table" using book building compared to auctions.
ASJC Scopus subject areas
- Economics and Econometrics