Enforcing IPO Underpricing: Evidence from High Bargaining Power Underwriters and Round-Number Offer Prices
2017-09-07

Lin Tse-Chun  Associated Professor 
2017.9.11(Mon) 14:00-15:30 pm
Room 315,3 / F, Building Hui Yuan

Enforcing IPO Underpricing: Evidence from High Bargaining Power Underwriters and Round-Number Offer Prices

Bio:

Professor Tse-Chun LIN is an associated professor with tenure at the Faculty of Business and Economics, the University of Hong Kong (HKU). He received his Ph.D. from the University of Amsterdam, and joined HKU since 2009. Prof. Lin's main research areas are empirical asset pricing, behavioral finance, and corporate governance. He published several papers in academic journals including Journal of Financial Economics, Review of Financial Studies, Management Science, Journal of Financial and Quantitative Analysis, Review of Finance, and Journal of Banking and Finance.

Abstract:
Our paper investigates the relation between the bargaining power of underwriters and clustering of initial public offering offer prices at integers. We find that underwriters with high bargaining power for a deal are more likely to use integer pricing as a cognitively convenient way to wield their influence on the issuers’ mental accounts to enforce underpricing. Our results also suggest that issuers signal their willingness to negotiate and cut prices in the early stage of the underwriting process by filing integer offer price ranges. Last, we find little support for the existing theories such as the costly negotiation hypothesis and the left-digit bias to explain the clustering of IPO offer prices at integers. Collectively, our paper provides new evidence on how powerful underwriters achieve IPO underpricing. 

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