An Empirical Analysis of Institutional Investor Decision-Making Factors in IPO Book-Building

Abstract

Various studies on IPOs have been conducted and have mainly focused on determinants of the public offering price. In this study, we analyzed the investment decision-making factors of institutional investors by focusing on the book-building process (a step before the public offering price decision). We conducted an empirical study on the determinants of institutional investors’ investment decisions based on data from 542 companies that participated in the book-building process from January 2017 to December 2023. As a result of the analysis, the significant variables were differentiated by the dependent variables. We found that the IT sector, size of the applied multiple, and disparity in the KOSDAQ index were essential factors in common. However, company characteristics written in the prospectus and financial data calculated based on the previous year’s performance were not significant in terms of institutional investors' decision-making. For the analysis, we used a seemingly unrelated regression (SUR) model (institutional competition rate, participation intensity, and mandatory holding pledge) and a multinomial logit model (selection of price band).