IPO price discovery efficiency under alternative regulatory constraints: Taiwan, Hong Kong and the U.S.

It has been proven by Ljungqvist and Wilhelm (2002) that constraints on underwriters' allocation discretion reduce price revisions. The dual-tranche bookbuilding in Taiwan and Hong Kong imposes more regulations limiting underwriters than U.S. bookbuilding does, but price revisions of Taiwan and Hong Kong IPOs are higher than those of the U.S. This is due not to increased information production but to the primary market inefficiency. Due to the endogenous heterogeneity of price revisions related to underpricing among countries, we use variance ratios to prove that the empirical evidence in Taiwan and Hong Kong is not contradictory to Ljungqvist and Wilhelm (2002).