Pre-IPO Hype by Affiliated Analysts: Motives and Consequences

53 Pages Posted: 7 Nov 2019 Last revised: 28 Sep 2020

See all articles by Yiming Qian

Yiming Qian

University of Connecticut

Xinjian Shao

University of International Business and Economics (UIBE)

Jingchi Liao

Shenzhen Stock Exchange

Date Written: September 27, 2020

Abstract

We provide the first study of underwriter-affiliated analysts’ pre-IPO research coverage and its impact on stock prices. Using proprietary data on a sample of Chinese IPOs, we document that affiliated analysts make highly overoptimistic forecasts about IPO clients. Analyst hype inflates both the offer price and the postmarket price. Consistent with the sentiment theory, IPO investors are insensitive to analyst hype because the offer price is set sufficiently lower than the postmarket price. We utilize a regulatory change as a quasi-experiment to establish that pre-IPO analyst bias is due to intentional hype. Our analysis contributes to the debate about recent US regulatory changes on pre-IPO analyst coverage.

Keywords: affiliated analyst, pre-IPO analyst coverage, analyst hype, quiet period rules, underwriters, price efficiency

JEL Classification: D82, G14, G24, G28, K22

Suggested Citation

Qian, Yiming and Shao, Xinjian and Liao, Jingchi, Pre-IPO Hype by Affiliated Analysts: Motives and Consequences (September 27, 2020). Available at SSRN: https://ssrn.com/abstract=3476735 or http://dx.doi.org/10.2139/ssrn.3476735

Yiming Qian (Contact Author)

University of Connecticut ( email )

2100 Hillside Road U-1041F, Room 452
Storrs, CT 06269
United States
860-486-2774 (Phone)

Xinjian Shao

University of International Business and Economics (UIBE)

Jingchi Liao

Shenzhen Stock Exchange ( email )

2012 Shennan Blvd., Futian District
Shenzhen
China

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