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Underpricing of homecoming A-share IPOs by Chinese firms already listed abroad

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  • Congsheng Wu

Abstract

Many Chinese firms have pursued overseas listings in Hong Kong or US without being first listed in China’s domestic market, mainly due to the regulatory constraints imposed by the Chinese government. Some of them eventually returned to mainland China through an A-share offering to Chinese investors. This unique feature of cross-listed Chinese stocks offers an experiment field to test some of the conventional theories of initial public offerings (IPOs) underpricing. Homebound IPOs are expected to be less underpriced than domestic only IPOs that are not cross-listed because being already listed in a developed market can mitigate the information asymmetry and issue uncertainty associated with their A-share IPOs. Nevertheless, we find that homecoming A-share IPOs are still substantially underpriced, with an average market adjusted first-day return of 96.53 %. Furthermore, their first-day returns are not significantly different from those of domestic only IPOs once firm- and offer-characteristics are controlled. This is in sharp contrast to the lukewarm aftermarket performance experienced in their overseas debuts. The mean market adjusted first-day return is merely 5.35 % in their US ADR offerings and 11.63 % in their Hong Kong H-share IPOs. Overall, our results suggest the importance of local market structures and norms as influential factors of IPO underpricing. Copyright Springer Science+Business Media New York 2014

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  • Congsheng Wu, 2014. "Underpricing of homecoming A-share IPOs by Chinese firms already listed abroad," Review of Quantitative Finance and Accounting, Springer, vol. 43(3), pages 627-649, October.
    • Handle: RePEc:kap:rqfnac:v:43:y:2014:i:3:p:627-649
    DOI: 10.1007/s11156-013-0387-3
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    Cited by:

    1. Ning Jia, 2017. "Diversification of pre-IPO ownership and foreign IPO performance," Review of Quantitative Finance and Accounting, Springer, vol. 48(4), pages 1031-1061, May.
    2. Hoque, Hafiz & Mu, Shaolong, 2021. "Does a reduction of state control affect IPO underpricing? Evidence from the Chinese A-share market," Journal of International Money and Finance, Elsevier, vol. 115(C).
    3. Cheng, Cheng & Schwienbacher, Armin, 2016. "Venture capital investors and foreign listing choices of Chinese companies," Emerging Markets Review, Elsevier, vol. 29(C), pages 42-67.
    4. Qile Tan & William Dimovski & Victor Fang, 2015. "The Underpricing of Infrastructure IPOs: Evidence from China," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 18(04), pages 1-31, December.
    5. Paul B. McGuinness, 2016. "Post-IPO performance and its association with subscription cascades and issuers’ strategic-political importance," Review of Quantitative Finance and Accounting, Springer, vol. 46(2), pages 291-333, February.
    6. Jerry W. Chen & In-Mu Haw & Jianfu Shen & Pauline W. Wong, 2020. "The economic benefits of returned-global Chinese IPOs," Review of Quantitative Finance and Accounting, Springer, vol. 55(4), pages 1207-1239, November.
    7. Troy Pollard, 2016. "Sneaking in the back door? An evaluation of reverse mergers and IPOs," Review of Quantitative Finance and Accounting, Springer, vol. 47(2), pages 305-341, August.
    8. Sabri Boubaker & Dimitrios Gounopoulos & Antonios Kallias & Konstantinos Kallias, 2017. "Management earnings forecasts and IPO performance: evidence of a regime change," Review of Quantitative Finance and Accounting, Springer, vol. 48(4), pages 1083-1121, May.

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    More about this item

    Keywords

    Chinese IPOs; Cross-listing; First-day return; Underpricing; A-share IPOs; G15;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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