Institutional Environment, Firm Ownership and IPO First-Day Returns: Evidence from China

32 Pages Posted: 11 Jun 2014

See all articles by Yibiao Chen

Yibiao Chen

Hong Kong Polytechnic University

Steven Shuye Wang

School of Business, Renmin University of China

Wei Li

Hong Kong Polytechnic University - School of Accounting and Finance

Wilson H.S. Tong

Hong Kong Polytechnic University

Multiple version iconThere are 2 versions of this paper

Date Written: June 9, 2014

Abstract

We examine two inconclusive issues in the IPO underpricing literature. It is unclear if private firms or government-owned firms (SOEs) underprice their IPOs more and how institutional environment affects IPO underpricing. Using a much larger China IPO sample of SOEs, we conclude that SOEs underprice their IPOs more. Specifically, SOEs controlled by the central government (CSOEs) underprice their IPOs 27 percentage points more than that of private firms whereas SOEs controlled by local governments (LSOEs) underprice 7 percentage points more. Using the National Economic Research Institute Index of Marketization (NERIIM) to measure institutional environment, we find that one index score improvement in institutional environment associates with a two percentage-point reduction in IPO underpricing. Importantly, better institutional environment reduces IPO underpricing most effectively for private firms, followed by LSOEs, and the least for CSOEs.

Keywords: IPO underpricing, institutional environment, share issue privatization, firm ownership, market sentiment

JEL Classification: G30, G32, G38

Suggested Citation

Chen, Yibiao and Wang, Steven Shuye and Li, Tina Wei and Tong, Wilson H.S., Institutional Environment, Firm Ownership and IPO First-Day Returns: Evidence from China (June 9, 2014). Available at SSRN: https://ssrn.com/abstract=2447513 or http://dx.doi.org/10.2139/ssrn.2447513

Yibiao Chen

Hong Kong Polytechnic University ( email )

Hung Hom, Kowloon
Hong Kong

Steven Shuye Wang (Contact Author)

School of Business, Renmin University of China ( email )

Beijing
China
8610-6251-8856 (Phone)

HOME PAGE: http://rbs.org.cn

Tina Wei Li

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Wilson H.S. Tong

Hong Kong Polytechnic University ( email )

Hong Kong

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