 IPOs with and without allocation discretion: Empirical evidenceAmit Bubna and Nagpurnanand R. Prabhala Journal of Financial Intermediation, 2011, vol. 20, issue 4, 530-561 Abstract: Bookbuilding, the dominant offering mechanism for IPOs, is controversial because of the power it gives underwriters over IPO allocations. Critics argue that allocations could be abused to generate kickbacks for underwriters while proponents hold that allocation power could improve pre-market price discovery. We examine underpricing, bidding, and allocations from two regimes in the Indian IPO market with varying underwriter allocation power. When underwriters control allocations, bookbuilding is associated with lesser underpricing, but the effect quickly dissipates when regulations withdraw allocation powers. Using proprietary datasets of IPO books in both regimes, we find that allocation powers are used quite extensively. Identical bids can receive significantly different allocations, which depend not only on the bid but also on the bidder identity. When allocation powers are withdrawn, we find evidence of bidder exit, new bidder entry, and altered bidding strategies with exit by both favored and unfavored bidders. Our evidence supports bookbuilding theories in which giving underwriters allocation powers assists in pre-market price discovery. Keywords: IPO; Bookbuilding; Allocation; Bidding; Auctions; Investment; banking (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:20:y:2011:i:4:p:530-561 Access Statistics for this article Journal of Financial Intermediation is currently edited by Elu von Thadden More articles in Journal of Financial Intermediation from Elsevier |
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