An empirical examination of IPO underpricing in the Chinese A-share market
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Abstract Research in the literature shows that initial public offerings (IPOs) of common stocks are systematically priced at a discount to their subsequent initial trading price. The large underpricing magnitude in the Chinese IPO market has attracted much attention. We consider three hypotheses that may explain the IPO underpricing in China. These are the winner's curse hypothesis, the ex ante uncertainty hypothesis and the signaling hypothesis. Among these hypotheses, the winner's curse hypothesis has not been tested in the Chinese market. Using IPO data for online fixed-price offerings from November 1995 to December 1998, our results show that the winner's curse hypothesis is the main reason for the high IPO underpricing in China. The signaling hypothesis is not empirically supported in the Chinese market during the sample period.
Subfields: Accounting, Finance
View Paper: https://www.semanticscholar.org/paper/89161d4d920b455224c47e096ce636293ab0f7a9
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Citations in the corpus
- The Development of China's Stock Market and Stakes for the Global Economy (2017, background): “IPO underpricing in China is an order of magnitude greater than in the United States, with average A-share IPO returns of 100–900% in studies surveyed by Yu & Tse (2006), compared with 20% in the United States according to Ritter & Welch (2002).”