Underwriters interest binding and IPO underpricing

•Underwriter's interest binding significantly affects the IPO underpricing.•The institutional investors have insignificant effect on the IPO underpricing.•The optimistic individual investors significantly increase the IPO underpricing. This paper explores the correlation between underwriter int...

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Bibliographic Details
Published in:Finance research letters 2023-11, Vol.57, p.104425, Article 104425
Main Authors: Xuan, Ziyue, Guo, Wenting, Lan, Faqin
Format: Article
Language:English
Subjects:
Investor sentiment
IPO underpricing
Underwriter interest binding
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Summary:•Underwriter's interest binding significantly affects the IPO underpricing.•The institutional investors have insignificant effect on the IPO underpricing.•The optimistic individual investors significantly increase the IPO underpricing. This paper explores the correlation between underwriter interest binding and IPO underpricing in China. We find that: Firstly, a stronger underwriter interest binding with the issuer is associated with more pronounced IPO underpricing. Secondly, the level of underwriter interest binding does not affect the impact of institutional investors on the IPO underpricing rate through raising the offer price during the oversubscription process. Lastly, a deeper underwriter interest binding leads to an increase in the IPO underpricing rate through the optimistic expectations of individual investors, as they raise the transaction price and subsequently contribute to higher underpricing.
ISSN:1544-6123
1544-6131
DOI:10.1016/j.frl.2023.104425