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Effects of Institutional Investors’ Bidding Information on Offer Prices and Initial Returns of IPO s
Author(s) -
Joh Sung Wook,
Kim YooHwan
Publication year - 2017
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12161
Subject(s) - initial public offering , bidding , valuation (finance) , institutional investor , business , monetary economics , ask price , yield (engineering) , economics , finance , financial economics , microeconomics , corporate governance , materials science , metallurgy
Using hand‐collected data on all IPO s 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.