Distance, Transportation and the Underpricing of IPOs
35 Pages Posted: 26 Jun 2015 Last revised: 22 Aug 2016
Date Written: June 25, 2015
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
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