Pre-IPO Hype by Affiliated Analysts: Motives and Consequences

70 Pages Posted: 7 Nov 2019 Last revised: 12 Nov 2022

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: November 11, 2022

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 aftermarket price. Consistent with the sentiment theory, IPO investors are insensitive to analyst hype because the offer price is set sufficiently lower than the aftermarket price. The results hold when we instrument analyst hype with a variable that affects their hyping incentive. We also utilize a regulatory change as a quasi-experiment. Our analysis contributes to the debate about regulations on pre-IPO information provision.

Keywords: pre-IPO research, affiliated analyst, forecast bias, 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 (November 11, 2022). 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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