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The pre-IPO dividend and IPO underpricing: Evidence from China

Author

Listed:
  • Wang, Jiaxin
  • Cheng, Ruonan
  • Huang, Yong
  • Yan, Chao

Abstract

More than one in five listed firms in China pay cash dividends during the year right before their initial public offerings (IPOs). This paper examines the association between pre-IPO dividend payment and IPO pricing using manually collected Chinese data from 2006 to 2019. We find that firms initiating pre-IPO dividends tend to have lower IPO underpricing than non-initiating firms. We also find that the effect of pre-IPO dividend initiation on IPO underpricing is more pronounced for firms with greater pre-IPO growth and profitability. Additional analyses indicate that initiating firms have better pre- and post-IPO operating performance and post-IPO stock performance. Moreover, initiating firms pay more dividends and attract significantly higher post-IPO investor attention. Collectively, the pre-IPO dividend initiation is not a short-term strategic behaviour of low-quality firms, but aims to send positive signals and improve investors' stock valuation.

Suggested Citation

  • Wang, Jiaxin & Cheng, Ruonan & Huang, Yong & Yan, Chao, 2023. "The pre-IPO dividend and IPO underpricing: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:pacfin:v:82:y:2023:i:c:s0927538x23002664
    DOI: 10.1016/j.pacfin.2023.102195
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    More about this item

    Keywords

    Dividend policy; IPO pricing; Firm performance; Investor valuation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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