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The Performance and Long-Run Characteristics of the Chinese IPO Market

  • Jing Chi

    ()

    (ICMA Centre, University of Reading)

  • Carol Padgett

    ()

    (ICMA Centre, University of Reading)

Registered author(s):

    We study the short-run and long-run performance of Chinese privatization initial public offerings (PIPOs), using data for 340 and 409 new issues on the Shanghai and Shenzhen Stock Exchanges respectively, from 1 January 1996 through 31 December 1997. The average market-adjusted initial return is found to be 127.31%, and the initial returns on both stock exchanges are not significantly different from each other. The average market-adjusted buy and hold return over the three years after listing is 10.26%, which is significantly different from zero at the 1% level. We then use cross-sectional analysis to explain the long-run supernormal performance of Chinese PIPOs, and find that government ownership, the offering size and the feature of belonging to a high-tech industry are the main determinants of the long-run performance. In addition, firms that perform better in the long-run tend to make more Seasoned Equity Offerings (SEOs), and the underpricing of IPOs is negatively related to their long-run performance.

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    Paper provided by Henley Business School, Reading University in its series ICMA Centre Discussion Papers in Finance with number icma-dp2002-09.

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    Length: 36 pages
    Date of creation: Jan 2002
    Date of revision: Apr 2002
    Publication status: Published in Pacific Economic Review December 2005, 10:4, 451-469
    Handle: RePEc:rdg:icmadp:icma-dp2002-09
    Contact details of provider: Postal: PO Box 218, Whiteknights, Reading, Berks, RG6 6AA
    Phone: +44 (0) 118 378 8226
    Fax: +44 (0) 118 975 0236
    Web page: http://www.henley.reading.ac.uk/

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    1. Machin, Stephen & Van Reenen, John, 1993. "Profit Margins and the Business Cycle: Evidence from UK Manufacturing Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 41(1), pages 29-50, March.
    2. Ibbotson, Roger G., 1975. "Price performance of common stock new issues," Journal of Financial Economics, Elsevier, vol. 2(3), pages 235-272, September.
    3. Mok, Henry M. K. & Hui, Y. V., 1998. "Underpricing and aftermarket performance of IPOs in Shanghai, China," Pacific-Basin Finance Journal, Elsevier, vol. 6(5), pages 453-474, November.
    4. Conrad, Jennifer & Kaul, Gautam, 1993. " Long-Term Market Overreaction or Biases in Computed Returns?," Journal of Finance, American Finance Association, vol. 48(1), pages 39-63, March.
    5. Menyah, Kojo & Paudyal, Krishna & Inyangete, Charles G., 1995. "Subscriber return, underpricing, and long-term performance of U.K. privatization initial public offers," Journal of Economics and Business, Elsevier, vol. 47(5), pages 473-495, December.
    6. Su, Dongwei & Fleisher, Belton M., 1999. "An empirical investigation of underpricing in Chinese IPOs," Pacific-Basin Finance Journal, Elsevier, vol. 7(2), pages 173-202, May.
    7. Ritter, Jay R, 1991. " The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(1), pages 3-27, March.
    8. Paudyal, K. & Saadouni, B. & Briston, R. J., 1998. "Privatisation initial public offerings in Malaysia: Initial premium and long-term performance," Pacific-Basin Finance Journal, Elsevier, vol. 6(5), pages 427-451, November.
    9. Kunz, Roger M. & Aggarwal, Reena, 1994. "Why initial public offerings are underpriced: Evidence from Switzerland," Journal of Banking & Finance, Elsevier, vol. 18(4), pages 705-723, September.
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