The underpricing and long-term performance of Chinese IPOs listed on the Hong Kong exchange
Year: 2024
Type: article
Abstract: Purpose This study aims to inform prospective listing firms, investors and regulators of the unique drivers of Chinese initial public offering (IPO) pricing on the Hong Kong Exchange. Design/methodology/approach Using a hand-collected IPO dataset, we investigate whether information uncertainty or investor exuberance drives underpricing and Chinese IPOs’ performance from 2002 to 2015, including 114 state-owned enterprises (SOEs). Findings Contrasting with the “listing bubble” in the China domestic stock market, generated by the overoptimism of retail investors, we highlight a “placing bubble” among Chinese firms listed in Hong Kong. This is driven by institutional investors’ buoyant demand for Chinese IPO shares, particularly those of SOEs. Chinese listing firms employ discreet earnings management strategies with their working capital accounts to smooth pre-IPO earnings, which becomes apparent to the market only in the long term. Originality/value This study is the first to examine the pricing of sought-after Chinese IPOs among international investors, who face various restrictions when investing in the Chinese domestic stock market. Additionally, it is the first study to measure earnings management using hand-collected pre-IPO data in IPO underpricing studies.
Authors: Hua Deng, Wendong Liu
Institution: Australian National University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W4402515863