Clustering and discounting in auction-style SEOs – Evidence from China

Abstract

This study examines the clustering and discounting of offer prices in auction-style seasoned equity offerings (SEOs) in China. More importantly, using a unique dataset of detailed bidding data submitted by participating investors in SEOs using the uniform-price auction mechanism, we document the clustering of bid prices at integers, and find that the clustering and discounting of integer bid prices drive the clustering and discounting of integer offer prices. Further, we find evidence that bid prices tend to cluster at integers for SEOs with higher uncertainty, and the larger bid discounts associated with integer bids can be explained by bid shading.