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24 BIAIS AND FAUGERON-CROUZET TABLE 2 Summary Statistics on 92 Mises en Ventes, 1983–1996 Variable Average Standard deviation Underpricing = ln(stock market clearing price/IPO price) 13% 16.52% ln( Total demand Supply ) 55 74 Supply (number of shares) 159262 141401 Price adjustment = ln(IPO price/ reservation price) 17.36% 10.66% Sales year before IPO∗ FF 635, 805, 979 1, 377, 289, 794 Age at time of IPO∗ 28.32 21.7 ∗ Statistics based on 68 observations between 1983 and 1994. OTC market (see Keloharju (1993)). In 1996, an additional tier of the French equity market, the “Nouveau Marché,” was created. It aims at attracting younger companies to the Bourse. Because the companies listing on this market are quite different from those listing on the “Second Marché” they are not included in the present analysis. For the IPOs in our sample we observe: • the IPO price, the reservation price, and the secondary market clearing price, • the number of shares sold, • the total number of shares demanded, • the age of the firm at the time of IPO, and the sales during the year prior to IPO (these variables were available only for the period up to 1994). Table 2 reports summary statistics on these variables. In particular, note that the firms going public in France are relatively older than their U.S. counterparts (a feature shared with firms going public in other European countries). Note also that underpricing is on average equal to 13%, a figure very similar to those observed in the United States in the context of the Book Building procedure, while on average the price adjustment is 17.36%. Our theoretical analysis implies that the adjustment of the IPO price over the reservation price should increase with total demand. To test this hypothesis, we regressed price adjustment on the strength of demand and estimated the following regression ln(Pj/R j) = a + b ln(D j/S j) + e j, where Pj is the price of IPO j, R j is the initial reservation price for this IPO, D j is the total demand (i.e., sum of the quantities of all the orders placed at all prices in this IPO) and S j is the number of shares sold. The results are in Table 3. The first column in Table 3 presents the simple OLS results, for which the slope is significantly positive. The second and third columns present estimates
IPO AUCTIONS 25 TABLE 3 IPO price Regression of Price Adjustment (ln( reservation price )) on Demand and Control Variables (t Statistics Are in Parentheses) Sample period 1983–1996 1983–1996 1983–1994 ∗ Number of observations 92 92 68 Estimation method OLS White correction for heteroschedasticity OLS Constant −0.027 −0.03 −0.1 (−1.47) (−1.88) (−0.79) ln ( Total demand Supply ) 0.061 0.053 0.06 (11.79) (72.8) (12.1) ln (sales year before IPO) — — 0.0008 (0.13) ln (age at time of IPO) — — 0.01 (1.77) ∗ Statistics based on 68 observations between 1983 and 1994. obtained after correcting for heteroskedasticity, using the White adjustment, and after controlling for exogenous variables such as the age of the firm and the level of its sales. The estimates obtained in these regressions are similar to those obtained in the simplest version of the test, and the coefficient of total sales is significantly positive in the three specifications. Figure 2 illustrates this analysis by plotting price adjustment (measured as the logarithm of the ratio of the IPO price to the initial reservation price) against total demand (measured as the logarithm of the ratio of total demand to supply). Our maintained hypothesis is that the Mise en Vente implements the optimal mechanism, like the Book Building method. Under this hypothesis, it should exhibit empirical regularities which are characteristic of this mechanism, and which are also observed in the Book Building method. One such empirical regularity is the underadjustment of prices to demand, which manifests itself in positive covariance between price adjustment and underpricing, and which was documented empirically in the case of the Book Building method by Hanley (1993). To test this hypothesis, we regressed underpricing on price adjustment, as ln(v j/Pj) = a + b ln(Pj/R j) + e j, where v j is the first market clearing price after the IPO, Pj is the price of IPO j, and R j is the initial reservation price for this IPO. The results are in Table 4. As in the previous regression we estimated a simple OLS specification, as well as two other specifications, one correcting for heteroskedasticity and the other controlling for age and sales. Consistent with the underadjustment hypothesis, the slope is significantly positive, in all three specifications. Figure 3 illustrates this analysis by plotting underpricing (measured as the logarithm of the ratio of the first market clearing price to the IPO price) against price adjustment.
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