Monday, 9 May, 2016 | 2:00 - 3:30 PM  | Room 337, HSBC Business School Building

Abstract

Using a proprietary database of 123,819 bids by institutional investors for share allocations in 783 Chinese IPOs, we document that bidding dispersion significantly predicts share offer pricing. IPOs with higher levels of bid dispersion in the institutional tranche auctions experience greater first-day return than other IPOs by discounting the offer price as a compensation for investors’ bearing valuation uncertainty and estimation risk. Our results hold after controlling for potential endogeneity and using alternative dispersion measures. Bid dispersion further negatively predicts both one-year operating performance post-IPO and three-month stock performance.