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IPO price discovery efficiency under alternative regulatory constraints: Taiwan, Hong Kong and the U.S

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  • Chang, Hsiu-Hua
  • Chen, Anlin
  • Kao, Lanfeng
  • Wu, Chin-Shun

Abstract

It has been proven by Ljungqvist and Wilhelm (2002) that constraints on underwriters' allocation discretion reduce price revisions. The dual-tranche bookbuilding in Taiwan and Hong Kong imposes more regulations limiting underwriters than U.S. bookbuilding does, but price revisions of Taiwan and Hong Kong IPOs are higher than those of the U.S. This is due not to increased information production but to the primary market inefficiency. Due to the endogenous heterogeneity of price revisions related to underpricing among countries, we use variance ratios to prove that the empirical evidence in Taiwan and Hong Kong is not contradictory to Ljungqvist and Wilhelm (2002).

Suggested Citation

  • Chang, Hsiu-Hua & Chen, Anlin & Kao, Lanfeng & Wu, Chin-Shun, 2014. "IPO price discovery efficiency under alternative regulatory constraints: Taiwan, Hong Kong and the U.S," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 83-96.
    • Handle: RePEc:eee:reveco:v:29:y:2014:i:c:p:83-96
    DOI: 10.1016/j.iref.2013.05.001
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    References listed on IDEAS

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    1. Jenkinson, Tim & Morrison, Alan D. & Wilhelm, William Jr., 2006. "Why are European IPOs so rarely priced outside the indicative price range?," Journal of Financial Economics, Elsevier, vol. 80(1), pages 185-209, April.
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    9. Ljungqvist, Alexander P. & Wilhelm, William Jr., 2002. "IPO allocations: discriminatory or discretionary?," Journal of Financial Economics, Elsevier, vol. 65(2), pages 167-201, August.
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    Cited by:

    1. Mazouz, Khelifa & Mohamed, Abdulkadir & Saadouni, Brahim & Yin, Shuxing, 2017. "Underwriters' allocation with and without discretionary power: Evidence from the Hong Kong IPO market," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 128-137.
    2. Wang, Chao-Shi & Tang, Hui-Wen & Chen, Roger C.Y., 2017. "Does IPO subscription demand affect investor herd behavior in Taiwan?," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 258-272.
    3. Huang, Hsin-Yi & Chiang, Min-Hsien & Lin, Jia-Hui & Lin, Yun, 2017. "Fixed-price, auction, and bookbuilding IPOs: Empirical evidence in Taiwan," Finance Research Letters, Elsevier, vol. 22(C), pages 11-19.
    4. Kao, Lanfeng & Chen, Anlin, 2019. "Partial adjustment of hybrid book-building IPOs with a pre-IPO market," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 292-300.
    5. Ge, Yuanjing & Guo, Haifeng & Fung, Hung-Gay & Guang, Kuncheng, 2019. "CEO effects on the IPO market under different policy regimes: Evidence from the Chinese SME board," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 163-175.
    6. Simon Gao & Tony Chieh-Tse Hou, 2019. "An Empirical Examination of IPO Underpricing Between High-technology and Non-high-technology Firms in Taiwan," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 18(1), pages 23-51, April.
    7. Pešterac Aleksandra, 2020. "The Importance of Initial Public Offering for Capital Market Development in Developing Countries," Economic Themes, Sciendo, vol. 58(1), pages 97-115, March.
    8. Chen, Jun & Ke, Bin & Wu, Donghui & Yang, Zhifeng, 2018. "The consequences of shifting the IPO offer pricing power from securities regulators to market participants in weak institutional environments: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 349-370.

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    More about this item

    Keywords

    IPO; Dual-tranche bookbuilding; Allocation discretion; Price discovery efficiency; Underpricing;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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