Publication Type

Journal Article

Version

publishedVersion

Publication Date

5-2023

Abstract

Using detailed bidding information in Chinese IPO book-building process, we find that institutional investors who have a close relationship with the underwriter are more likely to participate in bidding and their bidding prices are higher, compared to other institutional investors. We also find that related institutional investors bid higher when the underwriter is more likely to need or receive their support. Further analysis suggests that related institutional investors gain some benefits for their support to the underwriter, including receiving more shares in profitable IPOs, better timing their exit from the IPO in the open market, and receiving more optimistic earnings forecasts or stock recommendations from analysts of the underwriter. Regarding the economic consequence, we show that the underwriter is more likely to revise the offer price upward if related institutions bid higher. The evidence overall indicates the existence of relationship-driven bidding in the Chinese book-building process.

Keywords

IPOs, Book-building, Relationship, Collusive bidding, China

Discipline

Accounting | Asian Studies

Research Areas

Corporate Governance, Auditing and Risk Management

Publication

Journal of Accounting and Public Policy

Volume

42

Issue

3

ISSN

0278-4254

Identifier

10.1016/j.jaccpubpol.2022.107054

Publisher

Elsevier

Additional URL

https://doi.org/10.1016/j.jaccpubpol.2022.107054

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