The Use of 'Lucky' Numbers in the Pricing of Chinese A-Share Initial Public Offerings

Abstract

On July 7, 2010 the Agricultural Bank of China Limited announced the share price of its initial public offering (IPO) for the Chinese domestic market on the Shanghai Stock Exchange at a price of Rmb 2.68. It just so happens that the number 68 reminds Chinese speakers of a prosperous life. The number 8 on its own is considered lucky and pervades Chinese consumer pricing as a marketing tool. We find that twenty-six percent of the IPO prices for the Chinese domestic market between 2000 and 2009 end in the lucky number 8. We also find that other lucky numbers, and lucky number combinations, are favoured in Chinese IPO pricing. The number 4, for which the pronunciation is reminiscent of the word death, is also systematically avoided. In the United States IPO market, most IPO prices are based on the integer. This has been attributed to the negotiation hypothesis, where IPOs priced on the integer signify uncertainty as to the intrinsic value of an IPO. We find no evidence that this is also the case in the Chinese IPO market based on either number 8 or integer price-endings. We do find evidence that issuers and underwriters use number 8 price-endings to capitalise on investor sentiment. This is consistent with the marketing literature, where the number 8 is consistently used as a price-ending in advertising for Chinese consumer products.

Keywords: Chinese Initial Public Offerings, Initial Public Offerings, Lucky Numbers, Price Clustering, Negotiation Theory

JEL Classification: G1