How should a firm go public? A dynamic model of the choice between fixed-price offerings and auctions in IPOs and privatizations

Thomas J. Chemmanur; Mark H. Liu

doi:10.1093/rcfs/cfy006

How should a firm go public? A dynamic model of the choice between fixed-price offerings and auctions in IPOs and privatizations

Thomas J. Chemmanur, Mark H. Liu

Finance and Quantitative Methods

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

Abstract

We analyze the choice between fixed-price offerings and auctions in IPOs and privatizations. We model a firm going public by selling equity in the IPO market. Firm insiders have private information about intrinsic firm value, but outsiders can produce information about this value before bidding for shares. Inducing information production is beneficial for higher intrinsic value firms, because this information, reflected in secondary market prices, yields higher equity prices. We show that auctions and fixed-price offerings have different properties for inducing information production, solve for the equilibrium IPO mechanisms for firms with different characteristics, and explain the “IPO auction” puzzle.

Original language	English
Pages (from-to)	42-96
Number of pages	55
Journal	Review of Corporate Finance Studies
Volume	8
Issue number	1
DOIs	https://doi.org/10.1093/rcfs/cfy006
State	Published - Mar 1 2019

Bibliographical note

Publisher Copyright:
© The Author(s) 2018. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please e-mail: [email protected].

ASJC Scopus subject areas

Economics and Econometrics
Finance
Business and International Management

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How should a firm go public? A dynamic model of the choice between fixed-price offerings and auctions in IPOs and privatizations

Abstract

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ASJC Scopus subject areas

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