Institutional Investors’ Behavior, Open Source Information And IPO Pricing

Since Chinese book-building was put into implementation in2005, the IPObook-building had undergone three significant reforms. Although the severephenomenon of IPO underpricing was restrained, another problem―Three Highs‖–high offer price, high PE ratio and high over-raised fund happened. There was nodoubt that it would provide the key to these problems after companies were requestedto publish the specific quotes and subscription contents by CSRC in2010. At thesame time, related paper had found that Internet information had significantlyinfluenced investors’ behavior. Through specific quotes and subscription contents ofinquiry institutions, open source information, this article studied institutionalinvestors’ bidding behavior and underwriters’ pricing behavior to provide empiricalanalysis of IPO anomalies and help the formulation of policy.First, this article elaborated the literatures for the book-building mechanism,inquiry investors’ bidding behavior and open source information’s influence tofinancial field. Then section three studied the behavior of inquiry institutions andunderwriters through game analysis under two different mechanisms. At last thisarticle analyzed inquiry institutions’ bidding behavior and underwriter’s pricingbehavior by comparing the difference among institutional investors’ bidding, offerprice and the closing price after the expiration of lockup period. At the same time,based on a search-engine-based text data mining algorithm, a group of data on theamount of open source information content about small and medium-sized enterprisebroad are captured from Internet, and used to analyze the relationship between opensource information and agents in the IPO process.Data of all middle and small shares was collected from September2010toJanuary2012, and this article studied the inquiry institutions’ bidding behavior,underwriters’ pricing behavior in IPO book-building and open source information’influence to IPO pricing. The results indicated that the average means of institutionalbids were significant lower than the first day closing price after the expiration oflockup period, which indicated institutional bidder intended to drive down the offerprice. Since the Chinese underwriters were not endowed with rationing power, theydo not have the incentive to underprice the stocks. Earing more underwriting income drive them to set higher offering price, and it was one reason why offer pricing washigh. Although QFII had the tiptop bidding precision, the underwriters priced stocksmainly with reference to fund company, security company, insurance company andinstitutional bidder recommended by underwriter. With respect to open sourceinformation’s impact on IPO book-building, the more good open source informationbefore pricing will make the offer price revise upward larger, and the more bad opensource information will make the offer price revise downward lager. Investorsresponsed strongly to the bad open source information during the waiting period, themore bad information, the lower the underpricing of IPO. However, investors wereconservative to good open source information. Finally, this article summed up thelimitations of the study and put forward the future research direction based on thestudy design and empirical results.