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Geographic distance, firm affiliations, and IPO performance: evidence from China

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  • John P. Berns
  • Jing Zhang
  • Robert E. White

Abstract

Firms going through an initial public offering (IPO) face many uncertainties. Geographic distance between the firm headquarters and the major financial centers, where most investors are located, is another concern. Using a sample of 688 Chinese initial public offerings between 2005 and 2012, we find that remote firms leave investors informationally disadvantaged leading firms to underprice their offering to a greater extent. Furthermore, we find that business affiliations (prestigious lead underwriters and government), which signal firm quality, lessen and the effect of geographic distance on underpricing. Thus, in an IPO context, signals have increasing value for more geographically isolated firms wishing to maximize initial public offering performance. Our study has implications for both academics and practitioners by offering new insights on how geographic distance and signals impact IPO performance.

Suggested Citation

  • John P. Berns & Jing Zhang & Robert E. White, 2021. "Geographic distance, firm affiliations, and IPO performance: evidence from China," Venture Capital, Taylor & Francis Journals, vol. 23(1), pages 41-66, January.
    • Handle: RePEc:taf:veecee:v:23:y:2021:i:1:p:41-66
    DOI: 10.1080/13691066.2020.1859060
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    Cited by:

    1. Julian Bafera & Simon Kleinert, 2023. "Signaling Theory in Entrepreneurship Research: A Systematic Review and Research Agenda," Entrepreneurship Theory and Practice, , vol. 47(6), pages 2419-2464, November.
    2. Fu, Xiaoqing Maggie & Harrison, Richard T. & Li, Dongfu Franco, 2022. "Venture capital investment in university spin-offs: Evidence from an emerging economy," Journal of Corporate Finance, Elsevier, vol. 74(C).

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