Underwriter’s Compensation, Marketing Effects, Investor Attention and IPO Performance: Evidence From China
69 Pages Posted: 2 Aug 2019 Last revised: 4 Nov 2019
Date Written: November 1, 2019
The literature and industry practice suggest that IPO underwriters perform significant marketing functions. Based on a sample of 1,436 Chinese IPOs during 2005-2015, we estimate the abnormal IPO underwriting spread to proxy for the underwriter’s efforts. First, we find that underwriter’s efforts produce short-term marketing effects as measured by pre-IPO institutional investors’ participation, offer price up-ward revision. Moreover, we document that the underwriter’s efforts can enhance the persistence of investor attention in the long run. We show that the abnormal underwriting spread is positively associated with various measures of post-IPO investor attention including analyst coverage, media coverage, and the number of institutional investors who hold the stock as well as aftermarket liquidity. Further, we show that underwriter’s efforts are negatively associated with IPO underpricing and positively related to the firm’s total firm value.
Keywords: underwriter’s compensation, marketing effects, investor attention, IPO underpricing
JEL Classification: K2, G24, G34
Suggested Citation: Suggested Citation