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Underpricing of Chinese A-share IPOs and short-run underperformance under the approval system from 2001 to 2005

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  • Guo, Haifeng
  • Brooks, Robert

Abstract

This paper analyses underpricing and short-run underperformance of the Chinese A-share IPOs from Mar, 2001 to 2005 when the new approval system was adopted. We find that the average market adjusted first-day return is 93.49% in this period, a more reasonable level when compared with those in previous periods in China. The findings show that underpricing in this period is significantly affected by offering mechanisms and inequality of demand and supply of IPOs. The effect of shareholder's structure is tested in the model and state-owned share's weight is shown to increase the degree of underpricing. Meanwhile, this paper analyses IPOs' short-run underpricing on their 10th, 20th, 30th trading days. It is found that most IPOs' underpricing shrinks and the degree of shrinking degrees is different across the groups categorized by offering mechanisms. Further, the underperformance of IPOs which are underwritten by more prestigious underwriters shows a comparatively lower range and is less severe in the short-run.

Suggested Citation

  • Guo, Haifeng & Brooks, Robert, 2008. "Underpricing of Chinese A-share IPOs and short-run underperformance under the approval system from 2001 to 2005," International Review of Financial Analysis, Elsevier, vol. 17(5), pages 984-997, December.
    • Handle: RePEc:eee:finana:v:17:y:2008:i:5:p:984-997
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    More about this item

    Keywords

    G15 Chinese A-shares Initial public offering Underpricing Offering mechanism;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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