An Empirical Investigation of Underpricing in Chinese Ipos
Pacific-Basin Finance Journal, Vol. 7, 177-207
Posted: 30 Jun 1999
We investigate the cross-section variations in underpricing of Chinese initial public offerings (IPOs), using data of 308 firm-commitment offerings. After correcting for the endogeneity problems inherent in a number of regressions, we find evidence that underpricing can be explained in terms of a strategy for firms to signal their value to outside investors. Our econometric results also indicate that allocation mechanisms of IPO shares are related to the degree of underpricing. Firms that use lottery mechanisms are on average more underpriced than those that use fixed-price offer with pro-rata share allocation. Furthermore, we show that bribery is an unlikely cause of extreme underpricing observed in the Chinese IPO data and that differences in A- and B-share initial returns are related to differences in domestic and foreign investor's investment opportunities and investment sentiments.
Note: This is a description of the paper and is not the actual abstract.
JEL Classification: G15, G32, P34
Suggested Citation: Suggested Citation