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Initial Public Offerings Chinese Style

Published online by Cambridge University Press:  24 November 2022

Yiming Qian ,
Jay R. Ritter Open the ORCID record for Jay R. Ritter [Opens in a new window]  and
Xinjian Shao
Yiming Qian
Affiliation:
University of Connecticut School of Business [email protected]
Jay R. Ritter*
Affiliation:
University of Florida Warrington College of Business
Xinjian Shao
Affiliation:
University of International Business and Economics School of International Trade and Economics [email protected]
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

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This article provides a survey of China’s initial public offering (IPO) market, focusing on IPO pricing, bids and allocation, and aftermarket trading. We show that strict regulations result in suppressed IPO offer prices and high initial returns, causing a high cost of going public. Investors treat IPOs as lotteries with extremely high short-term returns, with little attention to the long term. The auction selling method, however, works in the way it is supposed to. Mutual funds bid in a more informative way than other investors, and their advantages are unlikely to be due to underwriters’ preferential treatment. We also discuss the latest registration-system reform.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 1 , February 2024 , pp. 1 - 38
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee, Jarrad Harford (the editor), and participants at Central University of Finance and Economics, Hong Kong Polytechnic University, Xiamen University, and the 2022 Florida State University SunTrust Beach Conference for useful suggestions. Shao thanks the financial support from the National Natural Science Foundation of China (Project No. 71872044).

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