Nothing Comes From Nothing: Value Judgement of Strategic Investors and IPO Pricing in Chinese STAR Market

ABSTRACT Does the value judgement of strategic investors who commit to follow‐on investment prior to stock issuance affect IPO pricing? Focusing on the mandatory introduction of strategic investors in IPOs on China's Science and Technology Innovation Board (the STAR Market), we examine whether their value judgement impacts IPO pricing. We find that stocks not favoured by strategic investors, as indicated by undersubscription, tend to exhibit poorer post‐IPO returns and weaker firm performance. The value assessments of strategic investors influence both institutional investor subscriptions and large‐block purchases, which in turn affect post‐IPO stock performance. Causality and robustness tests support the reliability of our findings. This study highlights the signalling role and evaluative influence of strategic investors in IPOs, offering valuable insights for other emerging markets.