Pre-IPO Hype by Affiliated Analysts: Motives and Consequences

51 Pages Posted: 7 Nov 2019

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: March 1, 2019

Abstract

Researchers and practitioners debate on the merit of recent US regulatory changes about pre-IPO analyst coverage and involvement in the IPO process. We contribute to this debate by examining underwriter-affiliated analyst coverage prior to IPOs using data from China. We document that affiliated analysts make highly overoptimistic forecasts about IPO clients. More optimistic forecasts are associated with poorer long-term stock performance. IPO investors are insensitive to analyst hype because the offer price is set sufficiently lower than short-term postmarket prices. Further investigation suggests that underwriters gain monetary benefits from hyping and they hype to inflate prices.

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

JEL Classification: D82, G14, G23, G24, G28, K22

Suggested Citation

Qian, Yiming and Shao, Xinjian and Liao, Jingchi, Pre-IPO Hype by Affiliated Analysts: Motives and Consequences (March 1, 2019). Available at SSRN: https://ssrn.com/abstract=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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