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Distance, transportation and the underpricing of IPOs

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Abstract

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.

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Notes

  1. The Chinese regulator put a 44% maximum limit on first day return of IPO firms from 2013.

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Acknowledgements

The study is funded by Tsinghua University Initiative Scientific Research Program No. 2017THZWYY10 and National Natural Science Foundation No. 71773125.

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Authors and Affiliations

  1. School of Economics and Management, Tsinghua University, Beijing, China

    Zhangkai Huang

  2. University of International Business and Economics, Beijing, China

    Jinyu Liu

  3. The School of Finance, Renmin University, Beijing, China

    Guangrong Ma

Authors
  1. Zhangkai Huang
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  2. Jinyu Liu
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  3. Guangrong Ma
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Correspondence to Zhangkai Huang.

Appendix

Appendix

See Table 11.

Table 11 Location and IPO discount: controlling distance to underwriter
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Huang, Z., Liu, J. & Ma, G. Distance, transportation and the underpricing of IPOs. Rev Quant Finan Acc 52, 991–1009 (2019). https://doi.org/10.1007/s11156-018-0733-6

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