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An Examination of the Underpricing of H-Share IPOs in Hong Kong

Listed author(s):
  • Terence Tai-Leung Chong

    (Department of Economics, The Chinese University of Hong Kong, Shatin, New Territories, Hong Kong)

  • Shuo Yuan

    (Department of Economics, The Chinese University of Hong Kong, Shatin, New Territories, Hong Kong)

  • Isabel Kit-Ming Yan


    (Department of Economics and Finance, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong)

The main purpose of this paper is to study the empirical determinants of the underpricing of H-share initial public offerings (IPOs) during the 1993–2003 period. A special characteristic of H-shares is that they are shares of companies incorporated in China, but are also listed abroad. Our estimates indicate that the average IPO underpricing level of H-shares was about 16.8%. We find that the conventional explanations for the worldwide IPO underpricing are not adequate in explaining the underpricing level of H-shares. Some new factors that are important in explaining the underpricing phenomenon in H-shares are identified. We show that the degree of IPO underpricing is positively associated with market conditions prior to issuance. It is also negatively related to the range of the issuing prices as well as to the growth rate of historical profits. In addition, it is found that firms cross-listed in Hong Kong and America have higher underpricing levels.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Review of Pacific Basin Financial Markets and Policies.

Volume (Year): 13 (2010)
Issue (Month): 04 ()
Pages: 559-582

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Handle: RePEc:wsi:rpbfmp:v:13:y:2010:i:04:p:559-582
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