You scratch my back and i scratch yours: evidence from relationship-based bidding in IPO auctions

Wenjun Wang ()
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Wenjun Wang: Agricultural Bank of China

Review of Quantitative Finance and Accounting, 2024, vol. 62, issue 4, No 9, 1593-1613

Abstract: Abstract Using a dataset of institutional bids for IPOs, we study how relationships with lead underwriters impact institutional investors’ bidding strategy in the auctioned IPOs. Our paper finds that strong business ties lead to higher bid prices. The effect is more pronounced among IPO firms that receive less market attention, and is attenuated for IPOs certified by reputable intermediaries. We propose that rent-seeking incentives may be the potential mechanism for this relationship-based bidding. Our study highlights that the business connection between underwriters and institutional investors has effect on the IPO pricing.

Keywords: Business ties; IPO pricing; Bidding strategy; Mutual funds (search for similar items in EconPapers)
JEL-codes: G10 G23 L14 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11156-024-01245-9

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