Institution Grouping in IPO Pricing: Evidence from China's STAR Market

Abstract

This paper investigates how institution grouping impacts IPO pricing in China. Using an auction model and bidding data from the Science and Technology Innovation Board (STAR Market) price inquiry process, we prove a significant positive correlation between institution grouping and IPO underpricing. We also prove that geographic proximity, shared holdings, and fund manager alumni relationships contribute to institution grouping. We futher evaluate the impact of regulatory reforms on restraining grouping behavior. Our findings demonstrate that collusive behavior significantly impacts IPO outcomes in emerging markets, highlighting its profound effects on market stability, pricing efficiency, and investor welfare in the registration-based system globally.

Keywords: IPO Auctions, Institutional Bidders, Grouping, IPO underpricing