A REVIEW OF IPO SELLING METHODS: IS THERE A CLEAR WINNER?

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Abstract

After the hot IPO market of 1999/2000, numerous U.S. underwriters have been sued in connection with unfair IPO allocation schemes. In these lawsuits, plaintiffs contend that the underwriters engaged in illegal tactics by soliciting and receiving kickbacks in exchange for allocations of portions of a company’s IPO, required tie-in purchases creating an artificial demand for the stock, and artificially inflated the price of the stock through “laddering” (requiring purchases of additional stock in the aftermarket at escalating prices). The proliferation of these laddering schemes has inspired several government agencies and regulatory bodies to seek alternatives for a fairer way to sell IPO shares to the public. While auctions such as that used by Google alleviate issues related to unfair share allocation, they are associated with other problems which make them unattractive for many issuers. Our study discusses the advantages and disadvantages of the existing selling methods. While there is no clear-cut answer as to what constitutes the bestselling method, our study should provide corporate managers with the necessary insights that are needed to choose the method that best meets their objectives. In addition, our study aims to open the door for further academic discussion that is required to address a number of questions that to date remain unanswered in this area.

Keywords: Initial Public Offerings, IPO Auctions, Book building, Public Offers
How to cite this paper: Pukthuanthong, K., & Walker, T. J. (2006). A review of IPO selling methods: Is there a clear winner?. Corporate Ownership & Control, 3(2), 68-74. https://doi.org/10.22495/cocv3i2p8