IPO underpricing in China's new stock markets

摘要

China's recent economic reforms have included the privatization and listing of many state-owned enterprizes (SOEs). This study investigates the pricing of initial public offerings of A-shares sold to domestic investors and B-shares sold to foreign investors. Our data consist of 701 A-share IPOs and 117 B-share IPOs that listed in the period 1992-1997. The median initial return on A-share IPOs is 145% while the median underpricing of B-shares is just 10%. We find that risk is strongly and positively associated with the underpricing of A-shares. High government and legal entity shareholdings are also associated with underpricing. B-share underpricing is positively related to seasoned equity offerings (SEOs) and government ownership. We find that underpricing is a positive function of the relative price-to-book ratio and the relative price-earnings multiple. Our study gives some insights into the pricing of new issues on China's stock exchanges.