Private Information Communication and IPO Pricing: Evidence From Individual Investment Bankers
54 Pages Posted: 10 Mar 2020
Date Written: August 18, 2019
Information flows are of critical importance for IPO pricing. We posit that individual investment bankers use personal social capital to address information problems during IPOs. Using a unique database of mutual fund bids in the Chinese IPO market, we find that when an investment banker has a social connection with a mutual fund manager, this manager is significantly more likely to (1) participate in the IPO, (2) submit higher than average bid prices, and (3) realize lower first-day and short-term post-IPO returns. Further evidence shows that social connections between individual investment bankers and fund managers reduce IPO underpricing. Overall, our findings confirm that private information communication plays a significant role during the IPO process.
Keywords: Initial public offering, Investment banker, Social capital, Information asymmetry
JEL Classification: G24, G30, G41, M41
Suggested Citation: Suggested Citation