Distance, Transportation and the Underpricing of IPOs

35 Pages Posted: 26 Jun 2015 Last revised: 22 Aug 2016

See all articles by Zhangkai Huang

Zhangkai Huang

Tsinghua University - School of Economics & Management

Jinyu Liu

University of International Business and Economics (UIBE) - School of Banking and Finance

Guangrong Ma

Peking University; Renmin University of China - School of Finance

Date Written: June 25, 2015

Abstract

This paper examines the influence of the firm’s location on IPO underpricing using data from the Chinese stock market. We find that the geographical proximity to major metropolitan areas reduces the magnitude of IPO underpricing: the distance between the firm and the top metropolitan areas is positively related to market-adjusted first-day return of the IPO firm. Information opacity further magnifies the geographical effects. Furthermore, we find that China’s recent development of the national bullet train system mitigates the influence of geographical location on IPO underpricing. We apply an instrumental variable approach and a placebo test to deal with potential endogeneity.

Keywords: geographic location, information asymmetry, bullet train, IPO underpricing

JEL Classification: G10, G30, O18

Suggested Citation

Huang, Zhangkai and Liu, Jinyu and Ma, Guangrong, Distance, Transportation and the Underpricing of IPOs (June 25, 2015). Available at SSRN: https://ssrn.com/abstract=2623075 or http://dx.doi.org/10.2139/ssrn.2623075

Zhangkai Huang (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Jinyu Liu

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street, Chaoyang District
Beijing, 100029
China
+8613720001753 (Phone)

HOME PAGE: http://mzttd.club/liujinyu.html

Guangrong Ma

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Renmin University of China - School of Finance

Ming De Main Building
Renmin University of China
Beijing, Beijing 100872
China

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