Distance, transportation and the underpricing of IPOs
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This paper examines the influence of the firm’s location on IPO underpricing using data from the Chinese stock market. We find that geographical proximity to major metropolitan areas reduces the magnitude of IPO underpricing: the distance between the firm and the major metropolitan areas is positively related to the 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 address robustness issues.
KeywordsDistance Information costs Bullet train IPO underpricing
JEL ClassificationG10 G30
The study is funded by Tsinghua University Initiative Scientific Research Program No. 2017THZWYY10 and National Natural Science Foundation No. 71773125.
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