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Underpricing of Chinese A-share IPOs and short-run underperformance under the approval system from 2001 to 2005

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  • Guo, Haifeng
  • Brooks, Robert

Abstract

This paper analyses underpricing and short-run underperformance of the Chinese A-share IPOs from Mar, 2001 to 2005 when the new approval system was adopted. We find that the average market adjusted first-day return is 93.49% in this period, a more reasonable level when compared with those in previous periods in China. The findings show that underpricing in this period is significantly affected by offering mechanisms and inequality of demand and supply of IPOs. The effect of shareholder's structure is tested in the model and state-owned share's weight is shown to increase the degree of underpricing. Meanwhile, this paper analyses IPOs' short-run underpricing on their 10th, 20th, 30th trading days. It is found that most IPOs' underpricing shrinks and the degree of shrinking degrees is different across the groups categorized by offering mechanisms. Further, the underperformance of IPOs which are underwritten by more prestigious underwriters shows a comparatively lower range and is less severe in the short-run.

Suggested Citation

  • Guo, Haifeng & Brooks, Robert, 2008. "Underpricing of Chinese A-share IPOs and short-run underperformance under the approval system from 2001 to 2005," International Review of Financial Analysis, Elsevier, vol. 17(5), pages 984-997, December.
  • Handle: RePEc:eee:finana:v:17:y:2008:i:5:p:984-997
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Su, Chen & Brookfield, David, 2013. "An evaluation of the impact of stock market reforms on IPO under-pricing in China: The certification role of underwriters," International Review of Financial Analysis, Elsevier, pages 20-33.
    2. Huyghebaert, Nancy & Xu, Weidong, 2015. "What determines the market share of investment banks in Chinese domestic IPOs?," China Economic Review, Elsevier, vol. 34(C), pages 150-168.
    3. Su, Chen & Bangassa, Kenbata, 2011. "The impact of underwriter reputation on initial returns and long-run performance of Chinese IPOs," Journal of International Financial Markets, Institutions and Money, Elsevier, pages 760-791.
    4. Guo, Haifeng & Brooks, Robert & Shami, Roland, 2010. "Detecting hot and cold cycles using a Markov regime switching model--Evidence from the Chinese A-share IPO market," International Review of Economics & Finance, Elsevier, pages 196-210.
    5. Qi Deng & Zhong-guo Zhou, 2016. "The pricing of first day opening price returns for ChiNext IPOs," Review of Quantitative Finance and Accounting, Springer, pages 249-271.
    6. Congsheng Wu, 2014. "Underpricing of homecoming A-share IPOs by Chinese firms already listed abroad," Review of Quantitative Finance and Accounting, Springer, pages 627-649.
    7. Haifeng Guo & Hung‐Gay Fung, 2011. "Growth Enterprise Board Initial Public Offerings: Characteristics, Volatility and the Initial‐day Performance," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 19(1), pages 106-121, January.
    8. Liu, Jia, 2013. "Fixed investment, liquidity, and access to capital markets: New evidence," International Review of Financial Analysis, Elsevier, pages 189-201.
    9. repec:eee:finana:v:52:y:2017:i:c:p:77-87 is not listed on IDEAS
    10. Guo, Haifeng & Brooks, Robert, 2009. "Duration of IPOs between offering and listing: Cox proportional hazard models--Evidence for Chinese A-share IPOs," International Review of Financial Analysis, Elsevier, vol. 18(5), pages 239-249, December.
    11. Güçbilmez, Ufuk, 2015. "IPO waves in China and Hong Kong," International Review of Financial Analysis, Elsevier, pages 14-26.
    12. Guney, Yilmaz & Li, Ling & Fairchild, Richard, 2011. "The relationship between product market competition and capital structure in Chinese listed firms," International Review of Financial Analysis, Elsevier, vol. 20(1), pages 41-51, January.
    13. Liu, Jia & Lister, Roger & Pang, Dong, 2013. "Corporate evolution following initial public offerings in China: A life-course approach," International Review of Financial Analysis, Elsevier, pages 1-20.
    14. Liu, Jianlei & Uchida, Konari & Gao, Ruidong, 2014. "Legal protection and underpricing of IPOs: Evidence from China," Pacific-Basin Finance Journal, Elsevier, pages 163-187.
    15. 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, pages 291-333.
    16. Geertsema, Paul & Lu, Helen, 2016. "A game-theoretic model of underpricing and over-subscription in Chinese IPO’s," Finance Research Letters, Elsevier, pages 93-96.

    More about this item

    Keywords

    G15 Chinese A-shares Initial public offering Underpricing Offering mechanism;

    JEL classification:

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

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