Pre-IPO Analyst Coverage: Information Production or Hype?

Chunxin Jia, Ruichang Lu, Jay R. Ritter, Zhen Xie, and Donghang Zhang

♦ Until recently, analyst coverage before an IPO was common in China. We find that analyst coverage and optimism for an IPO before the offer price is set are positively related to the offer price revision. Unlike the U.S. and other markets, higher offer price revisions are associated with lower initial returns in China. Analysts with connections to the underwriter are more likely to cover an IPO, but they do not provide more optimistic earnings forecasts. Analyst optimism after the offer price is set, but before trading starts, is positively related to the first-day return but unrelated to the long-run return.

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