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The IPO was unconventional

Question # 00081455
Subject: Economics
Due on: 08/10/2015
Posted On: 07/11/2015 04:58 AM

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On August 19, 2004, the Internet search firm Google went public, at an offer price of $85 per
share. The IPO was unconventional in that Google used an auction to determine its offer price
and sell shares to investors. In this respect, underwriters did not allocate shares to clients.
Instead investors registered to participate in the auction, and indicated the maximum price they
were willing to pay, along with the number of shares they wished to purchase. If a registered
investors maximum price was at least the offer price, the investor paid the offer price, not their
maximum price. Google had established its initial file range for the offer price to be $108 to $135
a share. However, based on the interest shown by investors in registering for the auction, the
firms executives reduced the range to between $85 and $95. On its first day, Google stock
opened at $100 per share.
A. Were investors, who purchased Google shares at $100 irrational, in that they could have paid
$85 the day before? Or might there be some other explanation for the 17 percent jump in price
when the stock began to trade publicly? Discuss.
B. Today, Google share price is considerably higher than even the most optimistic forecasters at
the time of the IPO. Are current investors being irrational?

Tags unconventional price google offer investors shares auction range maximum irrational share paid85 sharea purchased stockopened reduced based 135a shown registering executives thefirms explanation pricewhen current considerably time higher atthe optimistic today

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The IPO was unconventional

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Tutorial Preview …purchased xxxxxx shares xx $100 irrational, xx that they xxxxx have xxxxxxx xxx day xxxxxxx Or might xxxxx be some xxxxx explanation xxx xxx 17 xxxxxxx jump in xxxxxxxxx the stock xxxxx to xxxxx xxxxxxxxx Discuss x Today, Google xxxxx price is…
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