Abstract
We investigate whether firms’ withdrawals of their initial public offering (IPO) applications, as announced by the China Securities Regulatory Commission (CSRC) on 3 April 2013, lead to a contagion effect on the market reaction to other listed firms sponsored by the same agent. We find that listed firms that have the same sponsor as an “IPO withdrawing firm” face a negative market reaction, suggesting that firms’ IPO withdrawals make investors worried about the quality of sponsors and cause negative abnormal equity returns for listed firms with the same sponsor. We also find that this contagion effect is concentrated among listed firms with good accounting information because this event provides more unexpected negative information for investors. In addition, the contagion effect is concentrated among listed firms with more media or analyst coverage. This is because media and analyst coverage attracts investors’ limited attention, making them more pessimistic and finally leading to an increase in the contagion effect. Our study provides support for the contagion theory and investigates the effectiveness of the CSRC’s special checks on financial statements, which may give some suggestions for the healthy development of the IPO market.
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CLC Codes: F23, G14
© The Author(s) 2016. This article is published with open access by The Hong Kong Polytechnic University
* This paper is part of the NSFC projects No.71172221 and No.71472188 and supported by the MOE Program for New Century Excellent Talents in University and the MOF Program for Accounting Leading Talents. The authors wish to express their appreciation to the two anonymous reviewers for their suggestions and comments.
1 Xiongyuan Wang, Professor in School of Accountancy, Zhongnan University of Economics and Law; e-mail: Wangxiongyuan72@163.com. Corresponding author: Jie He, PhD student in Guanghua School of Management, Peking University; e-mail: jelin2010@163.com; correspondence address: 5 Yiheyuan Road, Haidian District, Beijing, China, 100087.
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Wang, X., He, J. Unexpected Information, Investor Attention, and the Contagion Effect of IPO Withdrawal. China Account Financ Rev 18, 8 (2016). https://doi.org/10.7603/s40570-016-0008-3
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DOI: https://doi.org/10.7603/s40570-016-0008-3