Going public and the sale of shares with heterogeneous investors: Agent-based computational modelling and computer simulations

In this paper we use agent-based computational modelling and computer simul ations to examine the interrelationship between different selling strategie s for going public. A great deal of recent empirical evidence suggests that to maximise the revenue raised from the shares sold in the public offering , it is fundamental to choose the appropriate design for the sale which, in turn, reflects the final ownership structure. This literature establishes that the market for shares is segmented and, particularly, that firms manag e the sale of shares with the purpose of discriminating between relatively small and passive investors and applicants for large potentially controllin g blocks. One of the key questions in this area, then, is: How and to what extent should this heterogeneity among potential investors influence the fi rm's strategy for selling shares ? Here we attempt to address this question from the standpoint of using agent-based computational modelling and compu ter simulations. Results show that the design of the sale is an important d eterminant of the performance of the negotiation process through which the firm is sold. A sequential sale beginning with an initial public offering o f dispersed shares, followed by a negotiated sale of a controlling block is , in general, more effective than other alternative selling strategies. Cha nging the negotiation protocol itself can act as an effective way of impact ing upon the revenue raised and the length of the process. The interrelatio nship between the method of sale and the performance may also depend on the degree of cognitive accuracy that characterises the negotiating agents' me ntal representations of their physical and social environment.