An Empirical Assessment of A-Share IPO Under-Pricing in China

다국어 초록 (Multilingual Abstract)

This paper investigates the under-pricing and long-run performance of 230 A-share IPOs issued in the Chinese markets using comparable firm multiples. We find that A-share IPOs are severely under-valued by issuers and underwriters at the offer, but over-valued by investors on the listing day. Both contribute to the severe under-pricing of IPOs in China. Our findings are robust across stock exchanges, classification of firms, criteria for choosing matching firms; absence of CSRC regulation and B-share market prices, respectively. The results also show that those over-valued IPOs by investors on the listing day under-perform those under-valued IPOs in the long-run.

참고문헌 (Reference)

1 Rock, K., "Why New Issues are Underpriced" 15 : 187-212, 1986

2 Kim, M., "Valuing IPOs" 53 : 409-437, 1999

3 Guo, H.F., "Underpricing of Chinese A-share IPOs and short-run Underperformance under the Approval System from 2001 to 2005" 17 (17): 984-997, 2008

4 Chan, K.L., "Under-pricing and Long-term Performance of IPOs in China" 10 (10): 409-430, 2001

5 Mok, H.M., "Under-pricing and Aftermarket Performance of IPOs in Shanghai, China" 6 : 453-474, 1998

6 Kaplan, S.N., "The Valuation of Cash Flow Forecasts: an Empirical Analysis" 50 : 1059-1093, 1995

7 Chemmanur, T.J., "The Pricing of Initial Public Offerings: a dynamic model with information production" 48 : 285-304, 1993

8 Chen, G.M., "The Post-issue Market Performance of Initial Public Offerings in China’s New Stock Markets" 14 : 319-339, 2000

9 Chi, J., "The Performance and Long-run Characteristics of the Chinese IPO market. working paper" the University of Reading 2002

10 Loughran, T., "The New Issues Puzzle" 50 : 23-51, 1995

11 Ritter J.R., "The Long-run Performance of Initial Public Offerings" 46 : 3-27, 1991

12 Miurin, P., "The Financial Reforms in Central and Eastern European Countries and in China" 17 : 883-911, 1993

13 Chen, G.M., "The Accuracy of Profits Forecasts and their Roles and Associations with IPO Firm Valuation" 10 (10): 202-226, 1999

14 Gu, A.Y., "State Ownership, Firm Size, and IPO Performance: Evidence from Chinese ‘A’ share issues" 21 (21): 101-108, 2003

15 Stoll, H.R., "Small Business and the New Issues Market for Equities" 5 : 309-322, 1970

16 Allen, F., "Signalling by Underpricing in the IPO market" 23 : 303-323, 1989

17 Grinblatt, M., "Signalling and the Pricing of New Issues" 44 : 393-420, 1989

18 Chi, J., "Short-run Underpricing and its Characteristics in Chinese IPO market, working paper" the University of Reading 2002

19 Wu, J., "Short-run Performance and Valuation of IPO in China" the National University of Singapore 2001

20 Welch, I., "Seasoned Offerings, Imitation Costs, and the Underpricing of Initial Public Offerings" 44 : 421-450, 1989

21 Chau, C.T, "Role of Ownership in Chinese Privatization" 4 : 51-78, 1999

22 Liu, L., "Research on First Day’s Abnormal Returns of IPOs in China’s securities market" 2 (2): 26-53, 2000

23 Ibbotson, R.G., "Price Performance of Common Stock New Issues" 2 : 235-272, 1975

24 Logue, D.E., "On the Pricing of Unseasoned Equity Issues: 1965-1969" 8 : 91-103, 1973

25 Gao Y., "Market Segmentation and Information Values of Earnings Announcements: Some Empirical Evidence from an Event Study on the Chinese Stock Market" 13 (13): 455-474, 2004

26 Su, D.W., "Leverage, Inside Ownership, and the Underpricing of IPOs in China. working paper" University of Akron 1999

27 Baker, Malcolm, "Investor Sentiment in the Stock Market" 21 (21): 129-151, 2007

28 Baker, Malcolm, "Investor Sentiment and the Cross-Section of Stock Returns" 61 (61): 1645-1680, 2006

29 Beatty, R.P., "Investment Banking, Reputation, and the Underpricing of Initial Public Offerings" 15 : 213-232, 1986

30 Loughran, T., "Initial Public Offerings: International Insights" 2 : 165-199, 1994

31 Chen, G.M., "IPO Underpricing in China’s New Stock markets. working paper" the Hong Kong Polytechnic University 2001

32 Chang, E., "IPO Underpricing in China: New Evidence from the Primary and Secondary Markets" 9 (9): 1-16, 2008

33 Reilly, F.K., "Further Evidence on Short-run Results for New Issues Investors" 8 : 83-90, 1973

34 Liu, J., "Equity Valuation Using Multiples. working paper" UCLA and Columbia University 1999

35 Purnanandam, A.K., "Are IPOs Really Underpriced?" 17 : 811-848, 2004

36 Su, D.W., "An Empirical Investigation of Underpricing in Chinese IPOs" 7 : 173-202, 1999

37 Ritter, J.R., "A Review of IPO Activity, Pricing, and Allocations" 57 : 1795-1828, 2002

38 Baron, D.P., "A Model of the Demand for Investment Banking Advising and Distribution Services for New Issues" 37 : 955-976, 1982