Pre-Announced Revenue Targets in Uniform-Price Auctions: Evidence from Seasoned Equity Offerings

This paper examines the implications of pre-announced revenue targets in uniform-price auctions used for seasoned equity offerings (SEOs). In this setting, issuers commit ex ante to a target revenue, a reserve price, and a maximum share quantity. Using a common-value framework, we show that under truthful bidding, the optimal issuer strategy is to set the share quantity such that the product of the reserve price and the share quantity equals the revenue target. This design induces more truthful bidding relative to standard uniform-price auctions without revenue commitments. We test these predictions using comprehensive data from China’s SEO market. First, we analyze how variations in issuer strategies affect SEO discounts and find that outcomes are most favorable when issuers follow the identified optimal strategy. Second, we evaluate auction performance by constructing a benchmark based on truthful bidding. The results indicate that this modified auction mechanism achieves prices only 0.028 below the truthful benchmark, with revenue less than 3% lower than the case with truthful bids. These findings highlight the potential effectiveness of uniform-price auctions with revenue targets in financial markets. • Develops a theoretical model showing that pre-announced revenue targets induce more truthful bidding in uniform-price SEO auctions. • Provides novel empirical evidence from China’s SEO market, using detailed auction data from 1154 offerings. • Demonstrates that aligning reserve price and share quantity with the revenue target improves auction outcomes. • Shows that actual issue prices deviate by only 0.029 from the truthful bidding benchmark, with less than 3% revenue loss.