Bidding styles of institutional investors in IPO auctions

Güçbilmez, Ufuk; Briain, Tomás Ó

doi:10.1016/j.finmar.2020.100579

Cited by 8 publications

(3 citation statements)

References 56 publications

(101 reference statements)

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“…Careful investigation of risk disclosure may help weaken investors’ risk choices (McGuinness, 2019 ). Güçbilmez and Briain ( 2020 ) contend that investors with more information should get higher returns. But different information disclosures have different effects.…”

Section: Literature Review and Research Hypothesismentioning

confidence: 99%

Cross-influence of information and risk effects on the IPO market: exploring risk disclosure with a machine learning approach

et al. 2022

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The paper examines whether the structure of the risk factor disclosure in an IPO prospectus helps explain the cross-section of first-day returns in a sample of Chinese initial public offerings. This paper analyzes the semantics and content of risk disclosure based on an unsupervised machine learning algorithm. From both long-term and short-term perspectives, this paper explores how the information effect and risk effect of risk disclosure play their respective roles. The results show that risk disclosure has a stronger risk effect at the semantic novelty level and a more substantial information effect at the risk content level. A novel aspect of the paper lies in the use of text analysis (semantic novelty and content richness) to characterize the structure of the risk factor disclosure. The study shows that initial IPO returns negatively correlate with semantic novelty and content richness. We show the interaction between risk effect and information effect on risk disclosure under the nature of the same stock plate. When enterprise information transparency is low, the impact of semantic novelty and content richness on the IPO market is respectively enhanced.

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Section: Literature Review and Research Hypothesismentioning

confidence: 99%

Cross-influence of information and risk effects on the IPO market: exploring risk disclosure with a machine learning approach

et al. 2022

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“…However, since the implementation of China's registration system, it has become feasible to manually acquire comprehensive IPO bid detail data, enabling us to discern the specific bidding behaviors of institutional investors. Traditional studies typically utilize institutional investors' bid data to examine the relationship with the short-term performance of IPOs [18][19][20]. For IPO firms, the valuation judgments of external investors will directly influence the firm's IPO pricing and financing level, and the impact on the initial pricing may also affect the sustainability of the firm's subsequent stock price performance [21,22].…”

Section: Literature Review and Hypotheses Development 21 Literature R...mentioning

confidence: 99%

Diversity of Institutional Investors’ Bidding Opinions in Shaping the Sustainability of IPO Performance

Li,

Liu

et al. 2024

Sustainability

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In this study, we leverage a comprehensive dataset of over 3.8 million bid entries from institutional investors participating in China’s capital market to investigate the determinants of heterogeneous bidding behavior among these investors and the subsequent economic outcomes. We evaluate the sustainability of initial public offering (IPO) performance through three interrelated metrics: post-IPO stock price performance, financial accounting performance, and environmental, social, and governance (ESG) performance. Our analysis reveals a pronounced positive association between the quality of firms’ pre-IPO and the recent reforms to the bookbuilding mechanism in China’s capital market, as well as the level of diversity in institutional investors’ bidding opinions. After accounting for these factors, we focus on the nexus between the diversity of bidding opinions and the sustainability of IPO performance. The empirical evidence indicates that a higher degree of diversity in bidding opinions is inversely related to firms’ post-IPO stock price performance, financial accounting performance, and ESG performance. Further mechanism tests suggest that this diversity leads to a depletion of medium- to long-term share price performance by intensifying market sentiment; impedes the enhancement of financial accounting performance by reducing the capital raised during the IPO; and negatively impacts ESG performance by constraining the firm’s ability to fulfill its corporate social responsibilities. These findings challenge the assumption that diversity of opinion is always beneficial. The insights gained from this research have significant implications for the sustainable growth strategies of listed companies in emerging markets.

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“…Institutional investors often take large positions in IPOs, where their purchasing power and regular participation leads underwriters to develop unique strategies to interact with them, often in a preferential way (Hanley and Wilhelm, 1995;Cornelli and Goldreich, 2001;Aggarwal et al, 2002;Ljungqvist and Wilhelm, 2002). Regular institutional investors are few; however, account for most of the demand in auctions (Güçbilmez and Briain, 2021). To illustrate their importance to the success of the IPOs, Ljungqvist and Wilhelm (2002) report Turkish initial public offerings a 69% average institutional allocation worldwide.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Allocation discretion, price discounts and returns in Turkish initial public offerings

Tütüncü

2021

IMEFM

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Purpose This study aims to investigate whether underwriters exercise their allocation discretion to offer favorable discounts to institutional investors. Design/methodology/approach The research covers 173 offerings at Borsa Istanbul between 2010 and September 2021. Two hypotheses related to allocation discretion are developed and tested by means of probit, ordinary least squares and two-stage least squares regressions. Heckman selection regressions are used for robustness tests. Findings Allocation discretion is catered toward institutional investors who account for more than 56% of all initial allocations adjusted by gross proceeds. Close to 84% of all gross proceeds come from offerings that allocation discretion is exercised. These discretionary offerings are sold with larger price discounts, yet provide lower initial returns, while evidence points to reallocation to retail investors due to weak demand from institutional investors. Research limitations/implications Despite using the population of firms in the research period, the sample size is small relative to more developed markets. The research period cannot be extended because allocation discretion is allowed in 2010. Practical implications The research highlights the importance of institutional and foreign investors to the equity markets. This issue is relevant due to the ongoing flight of foreign investors from emerging economies and the increasing participation of small investors in the stock markets. Social implications The study cautions retail investors against greater (re)allocations by underwriters who may seek to compensate for the loss of their foreign investor base and urges policymakers to regain foreign investors. Originality/value To the best of the authors’ knowledge, this is the first research paper to use actual discounts disclosed in the prospectus to test the predictions related to allocation discretion. The study also contributes to the emerging markets literature by documenting allocation practices of the Turkish underwriters for the first time.

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Bidding styles of institutional investors in IPO auctions

Cited by 8 publications

References 56 publications

Cross-influence of information and risk effects on the IPO market: exploring risk disclosure with a machine learning approach

Cross-influence of information and risk effects on the IPO market: exploring risk disclosure with a machine learning approach

Diversity of Institutional Investors’ Bidding Opinions in Shaping the Sustainability of IPO Performance

Allocation discretion, price discounts and returns in Turkish initial public offerings

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