Bidding Styles of Institutional Investors in IPO Auctions

Abstract We examine the bidding behavior of institutional investors in initial public offering (IPO) auctions using a hand-collected dataset of limit bids. We find that the majority of institutional investors in our sample are “occasional bidders,” who rarely get a share allocation. “Regular bidders” are in a minority but account for the bulk of the demand. They bid conservatively, and only a few of them can be classified as “well-informed bidders,” who place more aggressive bids in hotter IPOs than in colder ones. Our findings suggest that “dirty” auctions that are restricted to institutional investors work as an information extraction mechanism.