Issuing Method for Initial Public Offering
Date Issued
2006
Date
2006
Author(s)
Kuo, Yi-Hung
DOI
en-US
Abstract
IPO relevant issues have been widely discussed in the academia in the past several decades, especially in 80’s and 90’s. A great portion of these efforts are made to discover the reasons behind the famous phenomena: short run underpricing and long run underperformance, which have been empirically supported to exist across national and industrial border. Significant amount of evidences have been presented to convince that there are certain kind of linkages between issuing firms’ utility and the IPO strategies, like stock pricing and allocation. Another important strategy, IPO method decision or contract selection problem, has a relatively smaller concern so far.
In this thesis, we form a model based on the vertical integration concept in industrial economics to sketch out behavior of three major players who take part in IPO: the issuer, investment bank, and the investors, under both a firm-commitment contract and a best-effort contract. Two most critical elements: expected stock value and volatility, are involved in our discussion.
In chapter 3, we figure out how an investment bank decides a proper offering price to maximize total proceed, under the assumption that it competes the deal in a competitive environment. Yet we fail to find out the relationship between decisions of the offering price and the wholesale price. To make this up, we loosen the assumption of absolutely competitive banking industry, redefine investment bank’s behavior as being able to choose the amount it wants to underwrite, and construct another model. We suggest that the optimal choice could be firm-commitment, best-effort, or even direct IPO. A firm-commitment contract is the optimal choice when the money left on the table is greater under a best-effort contract than under a firm-commitment contract, but the reverse is not necessarily true. We also suggest that when a bank’s risk tolerance is much smaller than investors’, direct IPO is the best choice.
Subjects
初次上市
契約選擇
包銷
代銷
IPO
contract selection
issuing method
firm-commitment
best-effort
Type
thesis
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