Who Makes the Choice on IPO Underwriting Methods? Issuers Versus Underwriters

Using unique Taiwanese initial public offering (IPO) features, we examine whether the underwriters control the issue method choice (the expected revenue collection hypothesis) or whether the issuers make the choice in the best interests of the pre-IPO shareholders (the expected net wealth gain hypot...

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Bibliographic Details
Published in:Financial management 2015-12, Vol.44 (4), p.753-783
Main Authors: Chen, Hsuan-Chi, Wu, Sheng-Ching
Format: Article
Language:English
Subjects:
Analysis
Going public (Securities)
Insurance underwriters
Securities
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Summary:Using unique Taiwanese initial public offering (IPO) features, we examine whether the underwriters control the issue method choice (the expected revenue collection hypothesis) or whether the issuers make the choice in the best interests of the pre-IPO shareholders (the expected net wealth gain hypothesis). We find that the choice of issue method is consistent with maximizing pre-IPO shareholders' expected net wealth gains. The findings also suggest that most IPO issuers do not choose auctions. Though we offer insights into why IPO auctions have been declining, we note that this evidence cannot completely explain the total disappearance of auctions in many countries.
ISSN:0046-3892
1755-053X
DOI:10.1111/fima.12084