Effects of Institutional Investors' Bidding Information on Offer Prices and Initial Returns of IPOs1. (February 2017)

• Record Type: Journal Article
• Authors: Joh, Sung Wook; Kim, Yoo‐Hwan
• Is Part Of: Asia-Pacific journal of financial studies. Volume 46:Number 1(2017:Feb.)
• Page Start: 116
• Page End: 154
• Publication Date: 2017-02
• Subjects: Institutional investors -- Bidding price -- Bidding ratio -- Offer price revision -- IPO underpricing -- Price support requirement; Pacific Area -- Economic conditions -- Periodicals; Finance -- Asia -- Periodicals; Finance -- Pacific Area -- Periodicals; Asia -- Economic conditions -- Periodicals; 332.09505
• DOI: 10.1111/ajfs.12161
• Languages: English
• ISSNs: 2041-9945

Abstract

Abstract: Using hand‐collected data on all IPOs in Korea from 2001 to 2007 before the global financial crisis, we find that institutional investors' favorable valuation increases the offer price and initial returns. In particular, when institutional investors' weighted average bidding price (WAP) increases by 1%, the offer price increases by 0.81%. A higher WAP predicts higher initial returns. While oversubscription ratios yield positive effects on offer prices and predict higher initial returns, their effects are weaker when IPO market conditions or WAP are included in the regression equations. These results suggest that institutional investors' bidding prices reflect their private valuations of firms more than their oversubscription ratios. In addition, for predicting initial returns, institutional investors' bidding information outperforms the revised offer price.