Handbook of Empirical Corporate Finance SET

4.9 Auction aspects of initial public offerings (IPOs)

In the summer of 2004, the internet search firm Google completed the world’s largest initial public offering to be conducted via an auction procedure. Google sold 19.6 million shares at an offering price of $85 each, for a total of $1.67 billion raised. The auction method used was a variant of the Wall Street Dutch auction, covered immediately above. Initial public offerings of equity shares would seem to be excellent candidates for an auction procedure: multiple units of the same item for sale, with uncertainty over value and ability of a seller to commit to a sales method.

Interestingly, however, the evidence suggests that formal auctions are not favored as a sales mechanism. Instead, the ...