Underwriter Compensation, Marketing Effects, Investor Attention, and IPO Performance

55 Pages Posted: 20 Jan 2021

See all articles by Louis T. W. Cheng

Louis T. W. Cheng

The Hang Seng University of Hong Kong - Department of Economics and Finance

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance

Siyuan Yan

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: December 14, 2020

Abstract

The literature suggests that underwriters perform significant marketing functions in securities offerings. We argue that underwriter’s efforts related to marketing can be estimated by the abnormal component of IPO underwriting spread. This is feasible using a large sample of Chinese IPOs, which demonstrate a significant cross-sectional variation in underwriting spreads relative to highly clustered spreads in the U.S. We find that underwriter’s efforts produce short-term marketing effects as measured by pre-IPO institutional investors’ participation and offer price up-ward revision. Moreover, we document that underwriter’s efforts enhance the persistence of investor attention in the long run. We show that abnormal underwriting spread is positively associated with various measures of post-IPO investor attention including analyst coverage, media coverage, the number of institutional investors holding the stock, as well as aftermarket liquidity. Further, we show that underwriter’s efforts are negatively associated with IPO underpricing and positively related to total firm value.

Keywords: Underwriter Compensation, Marketing Effects, Investor Attention, IPO Performance

JEL Classification: K2; G24; G34

Suggested Citation

Cheng, Louis T. W. and Hu, Gang and Yan, Siyuan, Underwriter Compensation, Marketing Effects, Investor Attention, and IPO Performance (December 14, 2020). Available at SSRN: https://ssrn.com/abstract=3748563 or http://dx.doi.org/10.2139/ssrn.3748563

Louis T. W. Cheng

The Hang Seng University of Hong Kong - Department of Economics and Finance ( email )

Hang Shin Link
Siu Lek Yuen
Shatin
United States

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M1038, Li Ka Shing Tower
Hung Hom, Kowloon
Hong Kong
(852) 3400 8455 (Phone)

HOME PAGE: http://ganghu.org

Siyuan Yan (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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