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Share issuing privatizations in China: Sequencing and its effects on public share allocation and underpricing

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  • Huyghebaert, Nancy
  • Quan, Qi

Abstract

Share issuing privatizations (SIPs) in China are partial in nature and involve the sale of newly issued shares. Using data on 521 Chinese SIPs during 1994-2005, this paper investigates the firm and stock market characteristics that determine the fraction of shares sold to the general public and the degree of underpricing at SIP. We find that in the early stages of SIP, highly leveraged and heavily subsidized state-owned enterprises issue more new shares. Variables capturing the firm's financing needs from investment opportunities positively affect public share allocation, whereas internal cash generation has a negative impact, but only in later years. The determinants of underpricing further illustrate the uniqueness of SIPs compared with private-firm IPOs in developed countries. Overall, there is little evidence that uncertainty over the value of firm assets influences first-day abnormal returns. In contrast, variables measuring government commitment to privatization significantly affect underpricing. Finally, we document that public share allocation and underpricing are jointly determined, especially in more recent years, after the quota system was abolished and lower-quality firms were privatized. Journal of Comparative Economics 37 (2) (2009) 306-320.

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  • Huyghebaert, Nancy & Quan, Qi, 2009. "Share issuing privatizations in China: Sequencing and its effects on public share allocation and underpricing," Journal of Comparative Economics, Elsevier, vol. 37(2), pages 306-320, June.
    • Handle: RePEc:eee:jcecon:v:37:y:2009:i:2:p:306-320
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    1. Huyghebaert, Nancy & Quan, Qi & Sun, Lijian, 2014. "Financing decisions after partial privatization in China: Can a stock market quotation really provide discipline?," Journal of Financial Intermediation, Elsevier, vol. 23(1), pages 27-46.
    2. Huyghebaert, Nancy & Xu, Weidong, 2015. "What determines the market share of investment banks in Chinese domestic IPOs?," China Economic Review, Elsevier, vol. 34(C), pages 150-168.
    3. Hoque, Hafiz & Mu, Shaolong, 2021. "Does a reduction of state control affect IPO underpricing? Evidence from the Chinese A-share market," Journal of International Money and Finance, Elsevier, vol. 115(C).
    4. Raymond Fisman & Yongxiang Wang, 2015. "Corruption in Chinese Privatizations," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 31(1), pages 1-29.
    5. Jun Du & Xiaoxuan Liu, 2015. "Selection, Staging and Sequencing in the Recent Chinese Privatization," Journal of Law and Economics, University of Chicago Press, vol. 58(3).
    6. Nancy Huyghebaert & Qi Quan, 2011. "Ownership Dynamics after Partial Privatization: Evidence from China," Journal of Law and Economics, University of Chicago Press, vol. 54(2), pages 389-429.
    7. Zhe Shen & Jerry Coakley & Norvald Instefjord, 2014. "Earnings management and IPO anomalies in China," Review of Quantitative Finance and Accounting, Springer, vol. 42(1), pages 69-93, January.
    8. Johansson, Anders C. & Luo, Danglun & Rickne, Johanna & Zheng, Wei, 2016. "Government Intervention in the Capital Allocation Process: Firm Employment as an IPO Selection Rule in China," Stockholm School of Economics Asia Working Paper Series 2016-40, Stockholm School of Economics, Stockholm China Economic Research Institute.
    9. Kun Jiang & Susheng Wang, 2016. "Staged Privatization: Transforming State-Owned Enterprises into Market-Based Firms," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 172(4), pages 694-726, December.

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