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The Impact on IPO Performance of Reforming IPO Allocation Regulations: An Event Study of Shanghai Stock Exchange A-Shares

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Listed:
  • Fei Jiang

    (Department of Economics, Loughborough University)

  • Lawrence Leger

    (Department of Economics, Loughborough University)

Abstract

Initial public offerings in China are distinguished from IPOs in other markets by their extremely high abnormal initial returns and so-called 'Chinese Characteristics'. We examine the effect on IPO underpricing and short-run performance of significant changes in Chinese IPO regulations implemented in May 2002. The significant event was a regulatory change in the method of allocating IPO shares. Event study analysis reveals that abnormal initial returns decreased by 43.3% after the change in regulations, that beta risks of the IPOs increased and that an evenly-upward trend of cumulative abnormal initial returns was reversed to become evenly-downward. The results appear to be consistent with Information Cascades (Welch 1992) and Bandwagon (Ritter 1998) models of underpricing.

Suggested Citation

  • Fei Jiang & Lawrence Leger, 2009. "The Impact on IPO Performance of Reforming IPO Allocation Regulations: An Event Study of Shanghai Stock Exchange A-Shares," Discussion Paper Series 2009_04, Department of Economics, Loughborough University, revised Feb 2009.
    • Handle: RePEc:lbo:lbowps:2009_04
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    File URL: http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/ChineseIPO.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    IPO underpricing; IPO allocation; Policy impact; Chinese stock market; Shanghai Stock Exchange A-shares.;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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