Investor sentiment, underwriters’ behaviour and IPO pricing: Empirical analysis from off-line institutional investors’ bids

Using detailed bid data of institutional investors from 380 Chinese IPO firms, this paper examines the roles of investor sentiment and underwriters in the IPO pricing process. The results show that the higher the investor sentiment, the higher the bids that institutional investors will offer in the inquiry stage. In addition, underwriters will further raise the issue price based on the bid price offered by the institutional investors. Although the increased issue price is not related to investor sentiment, it has a significant negative correlation with the gap between the bids of institutional investors and the intrinsic value of the companies. Finally, we also find that investor sentiment is negatively correlated with IPO underpricing (intrinsic value less the issue price) and positively correlated with IPO first-day returns. These findings add to the IPO pricing literature and have important implications for market-oriented reforms of IPO pricing.