search query: @author Parlour, C.A. / total: 1
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| Author: | Parlour, C.A. Rajan, U. |
| Title: | Rationing in IPOs |
| Journal: | Review of finance
2005 : VOL 9:1, p. 33-63 |
| Index terms: | Stock markets Initial public offerings Models |
| Language: | eng |
| Abstract: | This paper provides a model of bookbuilding in IPOs, in which the issuer can choose to ration shares. Before informed investors submit their bids (hereafter as: bs.), they know that, in the aggregate, winning bidders (here as: bds.) will receive only a fraction of their demand. It is demonstrated that this mitigates the winners curse, that is, the incentive of bds. to shade their bs. It leads to more aggressive bidding, we characterize bid and revenue functions, and the optimal degree of rationing (here as: rat-g). It is shown that, when investors information is diffuse, maximal rat-g. is optimal. Conversely, when their information is concentrated, the seller should not ration shares. Testable predictions on bid dispersion and the degree of rationing are provided. |
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