Initial Public Offerings (IPOs) on ChiNext: Good Investment or Not?

Abstract

We study the IPO underpricing and long-run performance of ChiNext, a newly-established growth enterprise board in China. Using a sample of 281 ChiNext IPOs between October 2009 and December 2011, the initial average market adjusted abnormal return (MAAR) is 33.5% and the average 12-month buy-and-hold abnormal return (BHAR) is -45.7%. Although the average MAARs of ChiNext is significantly higher than that of Main Board IPOs, it is not significantly different from SME Board IPOs during the sample period. However, the ChiNext average BHARs is significantly lower than those on both the SME and Main Boards. Regression findings support the information asymmetry hypothesis and the behavioural theory on underpricing for ChiNext IPOs, and we find that underperformance of ChiNext IPOs is consistent with the significant decrease of their operating performance after listing.

Keywords: ChiNext, initial public offerings, underpricing, underperformance

JEL Classification: G32