Does IPO Underpricing in China Explain a Firm's Long-Term Performance? An Empirical Study of IPOs in China with Corporate Governance Perspectives

36 Pages Posted: 27 Aug 2007 Last revised: 18 Feb 2009

Martin Hovey

UNE Business School

Lary Li

RMIT University - School of Economics, Finance and Marketing; Financial Research Network (FIRN)

Date Written: January 1, 2009

Abstract

In excess of 1,500 firms have listed publicly on the Shanghai and Shenzhen stock exchanges in China since 1990. With close to 20 years of unique IPO activity, China represents a rich source of data to explore the IPO aftermarket performance. The sample of this study includes 311 IPOs issued from 1999 to 2001. The period is studied because it was the most dynamic phase of IPO issues in the Chinese market in recent times after which the market subsequently became extremely volatile. The results of the study show that firms with higher initial IPO returns are valued more highly by investors, and are expected to provide superior returns in the long-run. The ownership structure has a bearing on the corporate governance of the firm and its objectives. Accordingly, the market in China values legal person and foreign ownership more than other forms of ownership and expect these to enhance performance long-term. Management ownership has a positive influence on performance as it related to State ownership, but not to legal person ownership. On the other hand, State ownership was negatively related to performance. The findings also show that the growth potential of a firm has a significant bearing on the long run performance of IPOs in China. Larger firms are considered more highly by the market in IPOs in China. A number of other variables, including aspects of corporate governance, are applied to the study and their results are reported.

Keywords: IPO Performance, State-owned enterprises, Emerging markets, Corporate Governance, China

JEL Classification: P31, L33, G14, G3, G32, G38, O53

Suggested Citation

Hovey, Martin and Li, Lary, Does IPO Underpricing in China Explain a Firm's Long-Term Performance? An Empirical Study of IPOs in China with Corporate Governance Perspectives (January 1, 2009). Available at SSRN: https://ssrn.com/abstract=1009417 or http://dx.doi.org/10.2139/ssrn.1009417

Martin T. Hovey (Contact Author)

UNE Business School ( email )

TRAVENA ROAD
Armidale, NSW 2351
Australia

Larry Li

RMIT University - School of Economics, Finance and Marketing ( email )

Business
Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Paper statistics

Downloads
968
Rank
17,667
Abstract Views
4,010