Abstract
In this paper, we investigate the post-issue market performance of initial public offerings (IPOs) in China's new stock markets. Our analysis focuses on whether and how institutional features unique to China differentially affect IPO performance. These features include the existence of dual-class shares for the same underlying firms (A-shares issued to domestic investors and B-shares issued to foreign investors) and the unusually long time lag between the offering and listing dates. Our sample consists of 277 A-share and 65 B-share IPOs that were listed on China's new stock markets during the 1992–1995 period. Our study has a number of interesting results. First, A-share IPOs are much more severely underpriced during the initial return period than B-share IPOs. Second, B-share IPOs underperform A-share IPOs (and the market) during the post-issue periods for up to three years. Third, the results of multivariate regression analyses strongly suggest that economic factors determining the post-issue performance of IPOs differ across the A-share and B-share samples.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Allen, F. and G.R. Faulhaber, “Signalling by Underpricing in the IPO Market.” Journal of Financial Economics 23, 303–323, (1989).
Aggarwal, R. and P. Rivoli, “Fads in the Initial Public Offering Market?” Financial Management 19, 45–57, (1990).
Aggarwal, R., R. Leal, and L. Hernandez, “The Aftermarket Performance of Initial Public Offerings in Latin America.” Financial Management 22, 42–53, (1993).
Aharony, J., C.-W.J. Lee, and T.J. Wong, Financial Packaging of IPO Firms in Transitional Economy: The Case of B-shares and H-shares in China, Unpublished Working Paper (The Hong Kong University of Science and Technology), 1999.
Bailey, W., “Risk and Return on China's New Stock Markets: Some Preliminary Evidence.” Pacific-Basin Finance Journal 2, 243–260, (1994).
Bao, B.H. and L. Chow, “The Usefulness of Earnings and Book Value for Equity Valuation in Emerging Capital Markets: Evidence from Companies in the People's Republic of China.” Journal of International Financial Management and Accounting 10, 85–104, (1999).
Chemmanur, T.J., “The Pricing of Initial Public Offerings: A Dynamic Model with Information Production.” Journal of Finance 48, 285–304, (1993).
Chen, G., M. Firth, and J.-B. Kim, IPO Underpricing in China's New Stock Markets, UnpublishedWorking Paper (The Hong Kong Polytechnic University), 1999a.
Chen, G., M. Firth, and J.-B. Kim, The Usefulness of Reported Earnings Adjusted for International Accounting Standards for the Valuation of Dual-Class Shares in China's Capital Markets, Unpublished Working Paper (Hong Kong Polytechnic University), 1999b.
Chen, G., M. Firth, and O. Rui, The Economic Performance of Privatized Firms in the People's Republic of China, Unpublished Working Paper (The Hong Kong Polytechnic University), 1999c.
De Bondt, W. and R. Thaler, “Does the Stock Market Overreact?” Journal of Finance 40, 783–805, (1985).
De Bondt, W. and R. Thaler, “Further Evidence on Investor Overreaction and Stock Market Seasonality.” Journal of Finance 42, 557–581, (1987).
Firth, M., “An Analyzis of the Stock Market Performance of New Issues in New Zealand.” Pacific-Basin Finance Journal 5, 63–85, (1997).
Garfinkel, J.A., “IPO Underpricing, Insider Selling, and Subsequent Equity Offerings: Is Underpricing a Signal of Quality?” Financial Management 22, 74–83, (1993).
Grinblatt, M. and C.Y. Hwang, “Signalling and the Pricing of New Issues.” Journal of Finance 44, 393–420, (1989).
Haw, I.M., D. Qi, and W. Wu, Value-Relevance of Financial Reporting Disclosures in an Emerging Market: The Case of B-shares and H-shares in China, Unpublished Working Paper (Chinese University of Hong Kong), 1999.
Hwang, C.-Y. and N. Jayaraman, Long-term Performance of IPOs and non-IPOs: Japanese Evidence, Unpublished Working Paper (University of Pittsburgh), 1992.
Jain, B.A. and O. Kini, “The Post-Issue Operating Performance of IPO Firms.” Journal of Finance 49, 1699–1726, (1994).
Jegadeesh, N., M. Weinstein, and I. Welch, “An Empirical Investigation of IPO Returns and Subsequent Equity Offerings.” Journal of Financial Economics 34, 153–175, (1993).
Johnson, R., M. Sun, and L. Soenen, “The Shenzhen Stock Exchange: An Assessment of the Risk and Return.” Journal of Asian Business 10, 1–16, (1994).
Keloharju, M., “Winner's Curse, Legal Liability, and the Long-Run Performance of Initial Public Offerings in Finland.” Journal of Financial Economics 34, 251–277, (1993).
Kim, J.-B., I. Krinsky, and J. Lee, “The Aftermarket Performance of Initial Public Offerings in Korea.” Pacific-Basin Finance Journal 3, 429–448, (1995).
Levis, M., “The Long-Run Performance of Initial Public Offerings: The U.K. Experience 1980-1988.” Financial Management 22, 8–41, (1993).
Loughran, T. and J.R. Ritter, “The New Issue Puzzle.” Journal of Finance 50, 23–51, (1995).
Loughran, T. and J.R. Ritter, “The Operating Performance of Firms Conducting Seasoned Equity Offerings.” Journal of Finance 52, 1823–1850, (1997).
Loughran, T., J.R. Ritter, and K. Rydqvist, “Initial Public Offerings: International Insights.” Pacific-Basin Finance Journal 2, 165–199, (1994).
Mok, H.M.K. and Y.V. Hui, “Underpricing and Aftermarket Performance of IPOs in Shanghai, China.” Pacific-Basin Finance Journal 6, 453–474, (1998).
Paudyal, K., B. Saadouni, and R.J. Briston, “Privatization Initial Public Offerings in Malaysia: Initial Premium and Long-Term Performance.” Pacific-Basin Finance Journal 6, 427–451, (1998).
Poon, W.P.H., M. Firth, and H.G. Fung, “Asset Pricing in Segmented Capital Markets: Preliminary Evidence from China-domiciled Companies.” Pacific-Basin Finance Journal 6, 307–319, (1998).
Qi, D.,W. Wu, and H. Zhang, Shareholding Structure and Corporate Performance of Partially Privatized Firms: Evidence from Listed Chinese Companies, Unpublished Working Paper (Chinese University of Hong Kong), 1999.
Ritter, J.R., “The Long-Run Performance of Initial Public Offerings.” Journal of Finance 46, 3–27, (1991).
Shiller, R. “Speculative Prices and Popular Models.” Journal of Economic Perspectives 4, 55–65, (1990).
Su, D. and B.M. Fleisher, An Empirical Investigation of Underpricing in Chinese IPOs, Unpublished Working Paper (Ohio State University), 1999.
Tran, A.V., International Accounting Differences and Stock Returns: Evidence from Chinese Firms, Unpublished Working Paper (The Australian National University), 1999.
Welch, I., “Seasoned Offerings, Imitation Costs, and the Underpricing of Initial Public Offerings.” Journal of Finance, 421–449, (1989).
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Chen, G., Firth, M. & Kim, JB. The Post-Issue Market Performance of Initial Public Offerings in China's New Stock Markets. Review of Quantitative Finance and Accounting 14, 319–339 (2000). https://doi.org/10.1023/A:1008358609204
Issue Date:
DOI: https://doi.org/10.1023/A:1008358609204