Another game in town: Spillover effects of IPOs in China

Yi Li and Wei Zhang

Journal of Corporate Finance, 2021, vol. 67, issue C

Abstract: We investigate the stock price reactions of industry competitors to IPOs in China. Contrary to findings in the U.S., we document a positive valuation effect of Chinese IPOs from 2002 to 2013. This finding is robust to alternative rival definitions, investor reaction measurement, and sample selection criteria. Based on the existing theories and institutional setup of the Chinese stock market, we propose three non-competing hypotheses: the signaling hypothesis (i.e., IPOs could convey positive industry-related information), the collusion hypothesis (i.e., rival firms can benefit from the increasing likelihood of collusion), and the substitution hypothesis (i.e., rival stocks can substitute for IPO stocks as an appealing investment). With a series of tests, we demonstrate that the substitution hypothesis can explain this phenomenon. Furthermore, we find that the spillover effects of IPOs decline with the increase in investment choices after 2014.

Keywords: Initial public offerings; Spillover effects; Substitution (search for similar items in EconPapers)
JEL-codes: G14 G15 G18 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:67:y:2021:i:c:s0929119921000316

DOI: 10.1016/j.jcorpfin.2021.101910

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