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Short Term Equity Returns of Chinese IPOs, 1999 to 2004

Author

Listed:
  • Larry Li

    (Larry Li, School of Economics, Finance and Marketing, RMIT, Melbourne, Victoria 3000, Australia. E-mail: larry.li@rmit.edu.au)

  • John Fowler

    (John Fowler, Melbourne Centre for Financial Studies, Melbourne, Victoria 3000, Australia.)

  • Tony Naughton

    (Tony Naughton, School of Economics, Finance and Marketing, RMIT, Melbourne, Victoria 3000, Australia.)

Abstract

Our study of 531 Initial Public Offerings (IPOs) on the two Chinese Stock Exchanges during the period 1999 to 2004 indicates initial returns to investors of approximately 114.04 per cent and these earnings were sustained through the first month of trading. High initial returns on IPOs are most often characterised as a reflection of state policy acting with a view to longer-term economic gains and sound social policy. The sample IPOs were found to be oversubscribed by 243 times the share offered. Such a level of excess demand is a major factor in high initial returns to Chinese IPOs. Regression analysis indicated other major factors associated with these high initial returns including company size, offer size, general market conditions in the period of lead up to the first listing, the proportion of tradable-A shares available and the signal PE ratio at the time of offer. In addition, the paper emphasises the potential for very significant wealth effects, capital formation and development of a private capital market which arises from private sector gains linked to the IPOs.

Suggested Citation

  • Larry Li & John Fowler & Tony Naughton, 2008. "Short Term Equity Returns of Chinese IPOs, 1999 to 2004," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 7(2), pages 197-214, August.
    • Handle: RePEc:sae:emffin:v:7:y:2008:i:2:p:197-214
    DOI: 10.1177/097265270800700204
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    References listed on IDEAS

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    Cited by:

    1. Qi Deng & Zhong-guo Zhou, 2016. "The pricing of first day opening price returns for ChiNext IPOs," Review of Quantitative Finance and Accounting, Springer, vol. 47(2), pages 249-271, August.
    2. Sarra Ben Slama Zouari & Abdelkader Boudriga & Neila Boulila Taktak, 2011. "Determinants Of Ipo Underpricing: Evidence From Tunisia," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 5(1), pages 13-32.
    3. Boudriga, Abdelkader & Ben Slama, Sarra & Boulila, Neila, 2009. "What determines IPO underpricing ? Evidence from a frontier market," MPRA Paper 18069, University Library of Munich, Germany.

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    More about this item

    Keywords

    China; IPO underpricing; wealth transfers; JEL Classification: G14; JEL Classification: G32; JEL Classification: G38;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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