IPO share allocation and conflicts of interest |
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| Authors: | Naoki Kojima |
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| Institution: | (1) Department of Economics and Finance, Brunel University, Uxbridge, Middlesex, UB8 3PH, UK |
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| Abstract: | The underwriter of an IPO has two sources of compensation for its services on behalf of the issuer. One is through a commission
(spread), the other is by buying issued shares for itself (or its affiliates) and reselling them in the post-issue market.
Profits from the former decrease along with the magnitude of underpricing while profits from the latter increase with it.
Faced with these countervailing interests, the present paper analyzes how the underwriter decides upon the pricing and allocation
of IPOs.
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| Keywords: | IPO share allocation Conflicts of interests Asymmetric information Mechanism design |
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