IPO auctions and private information

IPO auctions, which provide an impartial way of determining IPO pricing and share allocations, offer a natural setting for examining whether institutional investors possess private information, and for measuring how valuable their information is. Analyzing detailed bidding data from Taiwan’s discrim...

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Bibliographic Details
Published in:Journal of banking & finance 2007-05, Vol.31 (5), p.1483-1500
Main Authors: Lin, Ji-Chai, Lee, Yi-Tsung, Liu, Yu-Jane
Format: Article
Language:English
Subjects:
Auctions
Bidding
Bids
Competition
Competitive bidding
Information
Initial public offering
Initial public offerings
Institutional investments
Institutional investors
Investors
IPOs
Private information
Studies
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Summary:IPO auctions, which provide an impartial way of determining IPO pricing and share allocations, offer a natural setting for examining whether institutional investors possess private information, and for measuring how valuable their information is. Analyzing detailed bidding data from Taiwan’s discriminatory (pay-as-bid) auctions, we find that, relative to retail investors, institutional investors tend to bid higher in auctions when IPO shares are more valuable, and that underpricing is larger in auctions with relatively higher institutional bids. These results imply that institutional investors are better informed about IPO value, and that they obtain higher information rents when they bid higher relative to retail investors. We estimate the value of institutional investors’ private information to be worth about 8.68% of return, which is the extra rate of return they command on their informational advantages over retail investors.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2006.09.004