Review of Quantitative Finance and Accounting

, Volume 46, Issue 2, pp 291–333 | Cite as

Post-IPO performance and its association with subscription cascades and issuers’ strategic-political importance

  • Paul B. McGuinnessEmail author
Original Research


This study focuses on the strategic-political importance of firms undertaking IPO in China’s international Hong Kong market. This market setting is of particular interest given the unique mix of state-backed and privately-owned issuers drawn to it. I find that an issuer’s strategic-political importance is strongly and positively related to post-IPO returns. An issuer’s strategic-political importance is also negatively correlated with the variance of changes in its post-listing earnings and revenue. Overall, the present study suggests that state support correlates with enhanced post-IPO stock returns and more stable sales turnover and earnings. However, results show that state ownership does not necessarily translate into increased post-IPO revenue and earnings growth. The paper’s second major contribution relates to the identification of pronounced subscription “cascades” (Welch in J Financ 67(2):695–732, 1992) and how these correlate with post-IPO returns. Results suggest that insipid (overly exuberant) subscription demand presages strong (weak) post-listing returns. Consistent with “cascade” arguments (Welch 1992), return reversals occur without commensurate revenue or earnings change. Finally, and in terms of valuation uncertainty (Miller in J Financ 32(4):1151–1168, 1977), findings point to an inverse association between post-IPO stock returns and the magnitude of an issue’s prospectus-disclosed offer price range.


IPOs Hong Kong Strategic-political importance Buy-and-hold returns Turnover Net profit Investor ‘cascades’ 

JEL Classification

F00 G00-01 G10 G15 G18 G38 



I express thanks to Dimitrios Gounopoulos for earlier comments, the Chief-Editor of the RQFA, CF Lee, for advice rendered during the review process as well as an anonymous reviewer. I also thank attendees during my presentation of the paper at the University of Sussex (February 2014).


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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of Finance, The Business Administration FacultyThe Chinese University of Hong KongNew TerritoriesHong Kong

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