IPO Underpricing in China and a Firm's Long-Term Performance?

Abstract

In excess of 1,000 firms have listed publicly on the Shanghai and Shenzhen stock exchanges in China since 1990. With just over 20 years experience with IPO activity, China represents a rich source of data to explore the IPO aftermarket performance. The sample of this study includes 311 IPOs issued from 1999 to 2001. The results of the study show that firms with higher initial IPO returns are valued more highly by investors, and are expected to provide superior future earnings and returns. Furthermore, the market values legal person and foreign ownership and expect these to enhance performance. On the other hand, state ownership was negatively related to performance. Management ownership has a positive influence on performance as it related to state ownership, but not legal person ownership. The findings also show that the growth potential of a firm has a significant bearing on the long run performance of IPOs in China. Larger firms are considered more highly by the market in IPOs in China. A number of other variables are applied to the study and their results are reported.