Underwriters interest binding and IPO underpricing

Abstract

This paper explores the correlation between underwriter interest binding and IPO underpricing in China. We find that: Firstly, a stronger underwriter interest binding with the issuer is associated with more pronounced IPO underpricing. Secondly, the level of underwriter interest binding does not affect the impact of institutional investors on the IPO underpricing rate through raising the offer price during the oversubscription process. Lastly, a deeper underwriter interest binding leads to an increase in the IPO underpricing rate through the optimistic expectations of individual investors, as they raise the transaction price and subsequently contribute to higher underpricing.