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Split-share structure reform and the underpricing of Chinese initial public offerings

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  • Arif Khurshed
  • Yan Tong
  • Mingzhu Wang

Abstract

This paper analyses whether the extreme underpricing of initial public offerings (IPOs) in China has been alleviated by the split-share structure reform in 2005. As an external policy shock to IPO firms, this Reform was designed to convert non-tradable shares into tradable shares, with the potentials to restore the distorted supply–demand relationship of newly issued shares and reduce the information asymmetry in Chinese stock market. Analysing a sample of IPOs in China from 2000 to 2011, we find that the split-share structure reform significantly reduced the magnitude of IPO underpricing since 2005. It had different impacts on the IPO shares issued by state-owned enterprise (SOEs) and non-SOEs. While IPO shares issued by SOEs and non-SOEs had similar underpricing rates before the Reform, non-SOE IPOs show lower underpricing than those of SOEs after the Reform. Furthermore, compared with IPOs issued by SOEs controlled by the central government, those issued by local governments controlled SOEs are more underpriced after the Reform.

Suggested Citation

  • Arif Khurshed & Yan Tong & Mingzhu Wang, 2018. "Split-share structure reform and the underpricing of Chinese initial public offerings," The European Journal of Finance, Taylor & Francis Journals, vol. 24(16), pages 1485-1505, November.
    • Handle: RePEc:taf:eurjfi:v:24:y:2018:i:16:p:1485-1505
    DOI: 10.1080/1351847X.2015.1107603
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    Cited by:

    1. Chun Zhou & Wenyu Zhou & Jiajun Lu, 2021. "The Short-Term Impacts of the Registration-Based IPO Reform in China: Towards a More Sustainable Equity Market," Sustainability, MDPI, vol. 13(20), pages 1-17, October.

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