How Should a Firm Go Public? A Dynamic Model of the Choice between Fixed-Price Offerings and Auctions in IPOs and Privatizations

摘要

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.