Rent-Seeking Activities in Hot IPO Allocations : An Analysis from a Law and Economics Perspective
Laddering, spinning and the demanding of premium commissions in exchange for a favourable allocation in hot IPOs were prevalent phenomena during the internet bubble period (1999-2000). An analysis of these practices shows that functioning as trade-based price manipulation laddering boosts the value of the issue. To maximise its profits, a lead-underwriter uses this outcome to increase the offer price and the underpricing level. This, in turn, creates the conditions needed for the other two rent seeking activities, which are considered as separate forms of profit-sharing, to arise. The decreased transparency of the share allocation process and the artificially boosted offer and after-market prices impair stock market development and thus have a negative effect on economic growth in the long-run. Current regulatory regimes in the US and the EU contain different securities law provisions addressing laddering, spinning and the demanding of premium commissions in exchange for a favourable allocation. Despite these numerous regulations, the present legal model contains significant imperfections and, therefore, cannot ensure an efficient outcome. As regards the private enforcement (tort liability) approach, the shortcomings include too complicated pleading requirements, strict issuers' liability, limits on damage compensation and too short limitation periods for laddering actions. As regards the public enforcement approach they refer to behaviour prohibitions and information disclosure requirements as well as the magnitude and the probability of the imposition of sanctions
Year of publication: |
2015
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Authors: | Plečkaitis, Vytautas |
Publisher: |
[2015]: [S.l.] : SSRN |
Subject: | Rent-Seeking | Rent seeking | Theorie | Theory | Börsengang | Initial public offering | Rechtsökonomik | Economic analysis of law |
Saved in:
freely available
Extent: | 1 Online-Ressource (147 p) |
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Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments July 4, 2013 erstellt |
Classification: | K22 - Corporation and Securities Law |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10013033846
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