Abstract
Abstract Using detailed bid prices from institutional investors for 474 IPOs in China from 2010 to 2012, we find that 62.07% of the bid prices cluster at integers. This phenomenon is more pronounced for IPO firms that are smaller or younger or that exhibit more volatile profitability. Furthermore, the percentage of integer bid prices decreases from 62.07% to 7.58% after a regulatory mandate that significantly reduces the valuation uncertainty of IPOs. Expecting a positive first-day return, institutional investors round the bid price upward to the nearest integer to increase their odds of share allocation. Consequently, the offer price increases and the post-issuance return decreases with the increasing fraction of integer bid prices. Overall, these results suggest that institutional investors, possibly constrained by cognitive resources, carry over heuristics to their bidding activities in IPOs.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
