 Firm location effect on underwriting, subscription, and underpricing: Evidence from IPOs in ChinaLewis Liu, Suman Neupane and Lei Zhang Economic Modelling, 2022, vol. 108, issue C Abstract: This study examines the effect of a firm's geographic proximity to its monitoring entities for Chinese IPOs. While prior literature identifies the effect of location on underpricing, we do not fully understand the channels causing the difference in underpricing. We hypothesize that the high expected cost of monitoring remote firms should lead to (a) choosing a less prestigious underwriter and (b) weaker demand from investors at the time of the IPO. Both these factors, in turn, should lead to a higher underpricing for remote firms. We test this conjecture using 1842 Chinese IPOs from 2005 to 2017 and find results consistent with our arguments. We find that remote firms, which have higher underpricing, are managed by less prestigious underwriters and have significantly lower subscriptions, particularly from retail investors. Our results, robust to propensity score matching and a two-stage least square instrument variable approach, are important for policymakers desiring equitable development. Keywords: IPO activity; Underpricing; Location effect; Monitoring effect; Information cost (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:108:y:2022:i:c:s0264999322000244 DOI: 10.1016/j.econmod.2022.105778 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.