Moez Bennouri

The Optimal Design of IPOs: Price vs Quantity Discrimination

This paper provides theoretical support to the use of the uniform pricing rule in the IPOs procedures. In particular, by using an optimal auction approach, we are able to fully characterize the optimal IPO mechanism in a very general informational environment. Our results show that: 1) the optimal IPO can be implemented through a uniform price across all the investors; 2) the optimal allocation rule is such that when the informed investors reveal too bad news, the seller awards the shares to the retail investors; 3) in case of an oversubscription of the issue, the rationing scheme is a linear translation of the optimal allocation rule, i.e. all investors are rationed by the same quantity of shares.

Single versus multiple banking: lessons from initial public offerings

A vast research in banking addresses the question of the costs and benefits of multiple bank relationships versus a single bank relationship. Although no clear-cutting conclusion is reached, several contributions suggest that multiple bank relationships might lead to a sub-optimal level of monitoring, compared to a single bank relationship, as a result of free riding and coordination problems. We take a novel approach to tackle this research question, by looking at the role, if any, played by the number of lending relationships in initial public offerings (IPOs). We look at the short-term performances of IPOs as measured by underpricing and find that firms that go public with multiple bank relationships exhibit more underpricing than those that go public with a single bank relationship. This finding is independent of the number of bank relationships and/or whether any of the lending banks also acts as underwriter in the offering. We interpret our results as suggesting that the market attributes a weaker certification role to multiple bank relationships because of their less effective monitoring of IPO firms.

Trading Mechanisms in Financial Markets: A Comparison Between Auction and Dealership Markets

This paper compares two market structures, namely auction and dealership markets defined respectively as centralized order-driven and fragmented quote-driven markets. The approach used departs from previous works comparing these market mechanisms by considering both the timing of order submission (quote versus order-driven) and trading concentration (centralized versus fragmented) as distinctive features of these trading structures. Comparison between market structures is based on different measures of market performances: market viability, informational efficiency, price variance, informed trading aggressiveness and market liquidity. Auction markets are less sensitive to the asymmetric information problem and exhibit a higher level of informational efficiency than dealership markets. Moreover, the relative magnitude (in both structures) of price variance, informed trading aggressiveness and market depth depend on market thickness.