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Study On IPO Underpricing In Chinese Security Market With The Economics Of Information

Posted on:2005-07-01Degree:MasterType:Thesis
Country:ChinaCandidate:W S ZhouFull Text:PDF
GTID:2156360125464550Subject:Business management
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Share offering is the base of security market, and Initial public offering (IPO) is an important steps that stock company transform privately-hold to public-hold. In IPO, pricing is the vital link. Reasonable offering price is not only on the behalf of issuers, investors and investment bank, but also in favor of developing resource allocating function of security market.In 1960s, overseas scholar noticed unreasonable phenomena that the offering price was always underpriced. in IPO. Underpicing is defined as that initial public offerings of common stocks are systematically priced at a discount to their subsequent trading price In 1975, Ibbotson found empirical evidence of underpricing. Subsequently, more evidence from different country shows that there is underpricing either in developed market of in emerging market.The history of Chinese stock market is not long. The large underpricing magnitude in the Chinese IPO market has attracted much attention. Mok and Hui (1998) report an underpricing of 289% for a sample of 87 Shanghai IPOs listed from 1990 to 1993.1 Su and Fleisher (1999) find the underpricing level as high as 948.6% for A-share IPOs before January 1,1996. A more updated report by Tian (2003) finds an average initial return of 267% for the IPOs from 1991 through 2000. These reported underpricing levels in the Chinese market are much higher than the average level of 60% in the emerging markets (Jenkinson and Ljungqvist, 2001).From the viewpoint of finance research, IPO underpricing in the sense of abnormal short-runreturns on IPOs is commonly perceived as a contradiction to capital-market efficiency. Moreover, higher degree of underpricing in China has affected development of its security market. Therefore, it is significant that finding the reasons brining about IPO underpricing and analyzing the factors carrying weight on the degree of underpicing. In this paper, I apply ex-ante model and examine the empirical relationship between IPO underpricing and proxies for ex ante information uncertainty in China. I also apply signaling models and investigate whether underpricing is a deliberate signal of firm quality.
Keywords/Search Tags:IPO, Underpricing, Information asymmetry, Ex-ante information uncertainty, Signaling model
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