IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v52y2020i23p2493-2507.html
   My bibliography  Save this article

What causes the IPO underpricing? New evidence from China’s SME market

Author

Listed:
  • Gaofeng Zou
  • Qiyuan Cheng
  • Weijie Chen
  • J. Ginger Meng

Abstract

We study 10-year IPO initial returns in China’s small and medium-sized enterprise (SME) board between 2006 and 2016, including 755 IPO samples. At the same time, we test how policy changes of IPO pricing and trading mechanism affect first-day initial returns. Our article adopts the stochastic frontier approach to estimate the fair value of IPOs and decompose the components of deliberate underpricing and mis-valuation factors, then using linear regressions investigate correlation between first-day initial returns and deliberate underpricing or mis-valuation factors. We find it is mis-valuation factors, especially, the irrational behaviour of individual investors that mainly cause the IPO underpricing in China’s SME market rather than deliberate underpricing. Besides, influenced by IPO pricing policies, the characteristic of IPO pricing varies from period to period.

Suggested Citation

  • Gaofeng Zou & Qiyuan Cheng & Weijie Chen & J. Ginger Meng, 2020. "What causes the IPO underpricing? New evidence from China’s SME market," Applied Economics, Taylor & Francis Journals, vol. 52(23), pages 2493-2507, May.
    • Handle: RePEc:taf:applec:v:52:y:2020:i:23:p:2493-2507
    DOI: 10.1080/00036846.2019.1693017
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2019.1693017
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036846.2019.1693017?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liu, Lewis & Neupane, Suman & Zhang, Lei, 2022. "Firm location effect on underwriting, subscription, and underpricing: Evidence from IPOs in China," Economic Modelling, Elsevier, vol. 108(C).
    2. Xuan, Ziyue & Guo, Wenting & Lan, Faqin, 2023. "Underwriters interest binding and IPO underpricing," Finance Research Letters, Elsevier, vol. 57(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:52:y:2020:i:23:p:2493-2507. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.