Information spillover in Chinese hybrid IPO auctions

Abstract

We examine the impact of information spillovers from contemporaneous hybrid IPO auction results on investor participation, price discovery, and event return of current IPOs. We find that the information produced by contemporaneous investors with different levels of sophistication affects the participation of institutional and retail investors in different ways. The implication is that the informativeness of contemporaneous bidding results varies based on investor sophistication. Although we find that information spillover from contemporaneous institutional investors has a positive impact on the price revision of current IPOs, the information spillover from contemporaneous retail investors has little influence on the current IPO price revision. Information spillover extends from the auction phase to IPO event and post-IPO returns. Heterogeneity analysis shows that information asymmetry, difficult-to-value companies, market volatility, and political uncertainty impact information production by institutional investors.