Abstract

In this paper, we analyzed the effect of different underwriting mechanisms on the share allocations and corporate governance. By adopting an analytical model, we studied currently two underwriting mechanisms in Taiwan. We found that when maximizing social welfare and attracting external governance, the mechanism with partial public offering and partial auction is better than the mechanism with partial public offering and partial book building. In addition, a mechanism with partial public offering and partial auction is not optimal unless the risk tolerances of small investors and large investors are the same.