Pre-IPO hype by affiliated analysts: Motives and consequences

Yiming Qian, Xinjian Shao and Jingchi Liao

Journal of Corporate Finance, 2024, vol. 89, issue C

Abstract: We provide the first study of underwriter-affiliated analysts' pre-IPO research coverage and its impact on stock prices. Using proprietary data on a sample of Chinese IPOs, we document that affiliated analysts make highly overoptimistic forecasts about IPO clients. Analyst hype inflates both the offer price and the aftermarket price. Consistent with the sentiment theory, IPO investors inadequately adjust to analyst hype because the offer price is set sufficiently lower than the aftermarket price. The results hold when we instrument analyst hype with a variable that affects their hyping incentive. We also utilize a regulatory change as a quasi-experiment. Our analysis contributes to the debate about regulations on pre-IPO information provision.

Keywords: Pre-IPO research; Affiliated analyst; Forecast bias; Analyst hype; Quiet period rules; Underwriters; Price efficiency (search for similar items in EconPapers)
JEL-codes: D82 G14 G24 G28 K22 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:89:y:2024:i:c:s092911992400110x

DOI: 10.1016/j.jcorpfin.2024.102648

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