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Pricing and Allocation Mechanisms in Underpricing of Chinese IPOs

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  • Jeng-Ren Chiou
  • Ming-Yuan Leon Li
  • Li Cheng
  • Shih-Yuan Chang

Abstract

This study tries to answer the question: Do changes in pricing and allocation mechanisms significantly affect the Chinese initial public offering (IPO) market? Four separate pricing and allocation mechanisms for the Chinese IPO market, operating from 1995 to 2007, are examined. We find that as these mechanisms evolved, the average and variance of IPO underpricing in China became smaller. The results indicate that as the Chinese IPO market has become more market-oriented, underpricing has significantly decreased, and the market has become more stable.

Suggested Citation

  • Jeng-Ren Chiou & Ming-Yuan Leon Li & Li Cheng & Shih-Yuan Chang, 2010. "Pricing and Allocation Mechanisms in Underpricing of Chinese IPOs," Chinese Economy, Taylor & Francis Journals, vol. 43(1), pages 93-108, January.
    • Handle: RePEc:mes:chinec:v:43:y:2010:i:1:p:93-108
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    Cited by:

    1. Liu, Jianlei & Uchida, Konari & Li, Yuan, 2020. "Provincial economic performance and underpricing of IPOs: Evidence from political interventions in China," Economic Modelling, Elsevier, vol. 86(C), pages 274-285.
    2. Monica Hussein & Zhong-guo Zhou & Qi Deng, 2020. "Does risk disclosure in prospectus matter in ChiNext IPOs’ initial underpricing?," Review of Quantitative Finance and Accounting, Springer, vol. 54(3), pages 957-979, April.
    3. Azevedo, Alcino & Guney, Yilmaz & Leng, Jingsi, 2018. "Initial public offerings in China: Underpricing, statistics and developing literature," Research in International Business and Finance, Elsevier, vol. 46(C), pages 387-398.
    4. Congsheng Wu, 2014. "Underpricing of homecoming A-share IPOs by Chinese firms already listed abroad," Review of Quantitative Finance and Accounting, Springer, vol. 43(3), pages 627-649, October.

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