Abstract
This study investigates the effect of analyst coverage in the primary market on IPO performance. Using a novel data set on analyst coverage in China's IPO Market, we find that the number of analysts covering a firm is positively associated with IPO initial returns. We also show that analyst coverage is positively related to small trading activities during the first trading day. Instrument variable analysis and other robustness tests provide consistent estimates. Additional analysis suggests that analysts attract the attention of individual investors, who then drive IPO initial returns and long-term price reversals in the post-IPO market. These findings contradict the argument that analysts reduce information asymmetry and instead support the attention hypothesis.
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