You Scratch My Back and I Scratch Yours: Evidence from Relationship‑based Bidding in IPO Auctions

Using a dataset of institutional bids for IPOs, we study how relationships with lead underwriters impact institutional investors’ bidding strategy in the auctioned IPOs. Our paper fnds that strong business ties lead to higher bid prices. The efect is more pronounced among IPO frms that receive less market attention, and is attenuated for IPOs certifed by reputable intermediaries. We propose that rent-seeking incentives may be the potential mechanism for this relationship-based bidding. Our study highlights that the business connection between underwriters and institutional investors has efect on the IPO pricing.