Private Information Communication and IPO Pricing: Evidence From Individual Investment Bankers

54 Pages Posted: 10 Mar 2020

See all articles by Paul Brockman

Paul Brockman

Lehigh University - College of Business

Xianjie He

Shanghai University of Finance and Economics - School of Accountancy

Shuwei Sun

Shanghai University of International Business and Economics - School of Accountancy

Huan Zou

Shanghai University of Finance and Economics - School of Accountancy

Date Written: August 18, 2019

Abstract

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

Brockman, Paul and He, Xianjie and Sun, Shuwei and Zou, Huan, Private Information Communication and IPO Pricing: Evidence From Individual Investment Bankers (August 18, 2019). Available at SSRN: https://ssrn.com/abstract=3538539 or http://dx.doi.org/10.2139/ssrn.3538539

Paul Brockman (Contact Author)

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Xianjie He

Shanghai University of Finance and Economics - School of Accountancy ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China

Shuwei Sun

Shanghai University of International Business and Economics - School of Accountancy ( email )

No. 1900, Wenxiang Road
Shanghai, 201620
China

Huan Zou

Shanghai University of Finance and Economics - School of Accountancy ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
49
Abstract Views
313
PlumX Metrics