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The impact of IPO approval on the price of existing stocks: Evidence from China

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  • Li, Yuanpeng
  • Sun, Qian
  • Tian, Shu

Abstract

This paper investigates whether initial public offering (IPO) announcements have any price impact on existing stocks in China. Using the Chinese IPO approval regime as a natural experiment, we find that IPO approval announcements have a negative price impact on stocks. This price effect appears to be a drift in equilibrium prices and is more pronounced on stocks that are more correlated with the IPO. These findings support an expectation-based downward-sloping demand curve hypothesis. We also document negative price reactions around the IPO listing day, which is consistent with the findings by previous authors. Further evidence rules out the signal effect of IPO approval announcements. In sum, IPO approvals can influence prices of other stocks by shaping the expectation of a change in the supply-demand equilibrium without actual trading of IPO shares.

Suggested Citation

  • Li, Yuanpeng & Sun, Qian & Tian, Shu, 2018. "The impact of IPO approval on the price of existing stocks: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 109-127.
    • Handle: RePEc:eee:corfin:v:50:y:2018:i:c:p:109-127
    DOI: 10.1016/j.jcorpfin.2018.03.002
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    IPO approval; Downward-sloping demand curve; Cross-stock price effect;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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