The Anchoring Effect in the Primary Market: Evidence from Dual-Listed Firms in Segmented Markets

48 Pages Posted: 26 Feb 2008

See all articles by Eric C. Chang

Eric C. Chang

University of Hong Kong - School of Business

Jinjuan Ren

University of Macau

Date Written: February 18, 2008

Abstract

The anchoring effect is demonstrated in the psychological literature to be prevalent and strong. We directly test the anchoring effect and confirm its presence in the primary market. We utilize the IPO data of dual-listed Chinese A and H-shares for which potential anchors can clearly be identified. Due to differences in the required rate of returns, the valuation of A-shares is higher than that of their corresponding H-shares. We provide strong evidence that when a firm sequentially issues H- and A-shares, the A-share offer price is anchored by the lower H-share price, which partially contributes to high A-share IPO underpricing.

Keywords: anchoring, IPO underpricing, cost of capital, segmented market

JEL Classification: G12, G14, G15

Suggested Citation

Chang, Eric Chieh C. and Ren, Jinjuan, The Anchoring Effect in the Primary Market: Evidence from Dual-Listed Firms in Segmented Markets (February 18, 2008). Available at SSRN: https://ssrn.com/abstract=1097482 or http://dx.doi.org/10.2139/ssrn.1097482

Eric Chieh C. Chang (Contact Author)

University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China

Jinjuan Ren

University of Macau ( email )

Room 4079, E22, Faculty of Business Administration
University of Macau
Taipa, Taipa Nil
Macau
(853) 8822-4185 (Phone)

HOME PAGE: http://www.umac.mo/fba/staff/susanren.html

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