TY  - JOUR
AU  - Jagannathan,Ravi
AU  - Jirnyi,Andrei
AU  - Sherman,Ann
TI  - Why Don't Issuers Choose IPO Auctions? The Complexity of Indirect Mechanisms
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16214
PY  - 2010
Y2  - July 2010
UR  - http://www.nber.org/papers/w16214
L1  - http://www.nber.org/papers/w16214.pdf
N1  - Author contact info:
Ravi Jagannathan
Kellogg Graduate School of Management
Northwestern University
2001 Sheridan Road
Leverone/Anderson Complex
Evanston, IL 60208-2001
Tel: 847/491-8338
Fax: 847/491-5719
E-Mail: rjaganna@northwestern.edu

Andrei Jirnyi
Northwestern University
2001 Sheridan Rd
Finance Dept. Rm 401
Evanston, IL 60208
E-Mail: a-jirnyi@northwestern.edu

Ann Sherman
Department of Finance
DePaul University
1 E. Jackson Blvd., Suite 6100
Chicago, IL 60604
E-Mail: ann.sherman@depaul.edu
AB  - In this paper we present a comprehensive comparison of IPO placement methods in over 50 countries. We find that out of the three primary methods, fixed price public offers, auctions, and book building, auctions are least popular with issuers. Since auctions allow for price discovery while avoiding the potential conflict of interest between issuer and underwriter, this is a surprising finding that is not adequately explained in the existing literature. We propose a new explanation: namely, that participating in auctions is substantially more difficult for investors compared to the other methods, and that this complexity can lead to investor behavior that is undesirable for the issuer. We suggest that this effect could be mitigated through a hybrid mechanism that resembles the one that is used in US treasury auctions.
ER  -