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How does sponsor Co-investment distort institutional investor bidding? Evidence from China

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  • Cao, Aochen
  • Lu, Huaixin
  • Zhang, Jianyang
  • Wang, Zidong

Abstract

This study uses a comprehensive dataset comprising 280,051 institutional investor bid prices and 734 underwriter valuation reports to assess how sponsor co-investment influences institutional bidding behavior. Results indicate that higher sponsor co-investment ratios significantly reduce institutional bid prices. As interests align, underwriters’ issue more pessimistic valuation reports, further depressing bid prices. Additional analysis reveals that sponsor co-investment increases initial public offering underpricing, lowers fundraising and price-earnings ratios, and negatively impacts firm medium- and long-term stock performance. These findings highlight the inherent contradiction in the sponsor co-investment system and provide empirical evidence for optimizing IPO pricing mechanisms in China.

Suggested Citation

  • Cao, Aochen & Lu, Huaixin & Zhang, Jianyang & Wang, Zidong, 2025. "How does sponsor Co-investment distort institutional investor bidding? Evidence from China," Finance Research Letters, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:finlet:v:84:y:2025:i:c:s1544612325010189
    DOI: 10.1016/j.frl.2025.107760
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    References listed on IDEAS

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