Do investors flip less in bookbuilding than in auction IPOs?

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Using a regime change setting, this paper examines whether investors flip less in bookbuilding than in auction initial public offerings (IPOs). Based on bookbuilding theory, we posit that the ability to control allocation flexibility in the bookbuilding mechanism should enable underwriters to avoid flippers and target long-term investors. Consistent with this prediction, we find that both frequent and non-frequent investors flip significantly less in bookbuilding IPOs. We also find that the influence of underwriter reputation is stronger in the bookbuilding regime, with frequent investors flipping considerably less in IPOs that are managed by high reputation underwriters in bookbuilding IPOs compared to auction IPOs. The results highlight the benefits of allocation discretion, which allows underwriters to influence investors’ behavior as well as use non-bid information in the IPO process. Finally, we examine the implications of flipping and find that although flipping increases liquidity, it contributes to stock price volatility and causes downward pressure on the stock price.
LanguageEnglish
Pages253-268
Number of pages16
JournalJournal of Corporate Finance
Volume47
Early online date24 Sep 2017
DOIs
Publication statusPublished - 31 Dec 2017

Fingerprint

Bookbuilding
Initial public offerings
Investors
Auctions
Underwriter reputation
Underwriters
Stock prices
Regime change
Prediction
Discretion
Stock price volatility
Investor behavior
Liquidity

Keywords

  • flipping
  • allocation discretion
  • Indian IPOs
  • IPO
  • auction
  • bookbuilding

Cite this

@article{753a31d80a2e48b9a7db271c867456ab,
title = "Do investors flip less in bookbuilding than in auction IPOs?",
abstract = "Using a regime change setting, this paper examines whether investors flip less in bookbuilding than in auction initial public offerings (IPOs). Based on bookbuilding theory, we posit that the ability to control allocation flexibility in the bookbuilding mechanism should enable underwriters to avoid flippers and target long-term investors. Consistent with this prediction, we find that both frequent and non-frequent investors flip significantly less in bookbuilding IPOs. We also find that the influence of underwriter reputation is stronger in the bookbuilding regime, with frequent investors flipping considerably less in IPOs that are managed by high reputation underwriters in bookbuilding IPOs compared to auction IPOs. The results highlight the benefits of allocation discretion, which allows underwriters to influence investors’ behavior as well as use non-bid information in the IPO process. Finally, we examine the implications of flipping and find that although flipping increases liquidity, it contributes to stock price volatility and causes downward pressure on the stock price.",
keywords = "flipping, allocation discretion, Indian IPOs, IPO, auction, bookbuilding",
author = "Suman Neupane and Andrew Marshall and Krishna Paudyal and Chandra Thapa",
year = "2017",
month = "12",
day = "31",
doi = "10.1016/j.jcorpfin.2017.09.015",
language = "English",
volume = "47",
pages = "253--268",
journal = "Journal of Corporate Finance",
issn = "0929-1199",

}

Do investors flip less in bookbuilding than in auction IPOs? / Neupane, Suman; Marshall, Andrew; Paudyal, Krishna; Thapa, Chandra.

In: Journal of Corporate Finance, Vol. 47, 31.12.2017, p. 253-268.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Do investors flip less in bookbuilding than in auction IPOs?

AU - Neupane, Suman

AU - Marshall, Andrew

AU - Paudyal, Krishna

AU - Thapa, Chandra

PY - 2017/12/31

Y1 - 2017/12/31

N2 - Using a regime change setting, this paper examines whether investors flip less in bookbuilding than in auction initial public offerings (IPOs). Based on bookbuilding theory, we posit that the ability to control allocation flexibility in the bookbuilding mechanism should enable underwriters to avoid flippers and target long-term investors. Consistent with this prediction, we find that both frequent and non-frequent investors flip significantly less in bookbuilding IPOs. We also find that the influence of underwriter reputation is stronger in the bookbuilding regime, with frequent investors flipping considerably less in IPOs that are managed by high reputation underwriters in bookbuilding IPOs compared to auction IPOs. The results highlight the benefits of allocation discretion, which allows underwriters to influence investors’ behavior as well as use non-bid information in the IPO process. Finally, we examine the implications of flipping and find that although flipping increases liquidity, it contributes to stock price volatility and causes downward pressure on the stock price.

AB - Using a regime change setting, this paper examines whether investors flip less in bookbuilding than in auction initial public offerings (IPOs). Based on bookbuilding theory, we posit that the ability to control allocation flexibility in the bookbuilding mechanism should enable underwriters to avoid flippers and target long-term investors. Consistent with this prediction, we find that both frequent and non-frequent investors flip significantly less in bookbuilding IPOs. We also find that the influence of underwriter reputation is stronger in the bookbuilding regime, with frequent investors flipping considerably less in IPOs that are managed by high reputation underwriters in bookbuilding IPOs compared to auction IPOs. The results highlight the benefits of allocation discretion, which allows underwriters to influence investors’ behavior as well as use non-bid information in the IPO process. Finally, we examine the implications of flipping and find that although flipping increases liquidity, it contributes to stock price volatility and causes downward pressure on the stock price.

KW - flipping

KW - allocation discretion

KW - Indian IPOs

KW - IPO

KW - auction

KW - bookbuilding

UR - https://www.sciencedirect.com/journal/journal-of-corporate-finance

U2 - 10.1016/j.jcorpfin.2017.09.015

DO - 10.1016/j.jcorpfin.2017.09.015

M3 - Article

VL - 47

SP - 253

EP - 268

JO - Journal of Corporate Finance

T2 - Journal of Corporate Finance

JF - Journal of Corporate Finance

SN - 0929-1199

ER -