Winner's curse in initial public offering subscriptions with investors' withdrawal options

Dennis K.J. Lin, Lanfeng Kao, Anlin Chen

Research output: Contribution to journalArticlepeer-review

7 Scopus citations


Contrary to fixed-priced initial public offering (IPO) subscribers in many other countries, IPO subscribers in Taiwan own the option to withdraw from their IPO allocations after learning the allocation rate (ALLOC). Investors' option to withdraw reduces the information asymmetry between informed investors and uninformed investors but increases the firmcommitment underwriting risk. We show that under investors' option to withdraw, uninformed investors can improve their performance by learning from the ALLOC and/or the withdrawal rate. Consequently, firm-commitment underwriters will absorb more overpriced shares. Unless underwriters are compensated directly by issuers, IPOs should be more underpriced to compensate underwriting activities under investors' option to withdraw.

Original languageEnglish (US)
Pages (from-to)3-27
Number of pages25
JournalAsia-Pacific Journal of Financial Studies
Issue number1
StatePublished - Feb 2010

All Science Journal Classification (ASJC) codes

  • Finance


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