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Does oil price uncertainty affect IPO underpricing? Evidence from China

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  • Xiang, Xin
  • He, Xu
  • Han, Yajie

Abstract

Oil is regarded as a crucial energy source impacting firms’ production, investments, and even financing. In this study, we investigate the relationship between oil price uncertainty and underpricing of initial public offerings (IPOs). Using a sample of IPO firms in the Chinese A-share market between 2010 and 2022, we demonstrate that oil price uncertainty is positively associated with IPO underpricing. The transmission mechanism suggests that oil price uncertainty increases information asymmetry, prompting IPO firms to use underpricing to signal their profitability and ensure the participation of investors. Moreover, the positive relationship between oil price uncertainty and IPO underpricing is strengthened in state-owned enterprises and is weakened in firms with enhanced corporate governance. We contribute to the existing literature by establishing a new link between oil price uncertainty and IPO underpricing.

Suggested Citation

  • Xiang, Xin & He, Xu & Han, Yajie, 2024. "Does oil price uncertainty affect IPO underpricing? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 84(C), pages 240-259.
    • Handle: RePEc:eee:ecanpo:v:84:y:2024:i:c:p:240-259
    DOI: 10.1016/j.eap.2024.09.007
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    More about this item

    Keywords

    Oil price uncertainty; IPO underpricing; Information asymmetry; Post-IPO performance;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • 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

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