Short Term Equity Returns of Chinese IPOs, 1999 to 2004

Larry Li, John Fowler and Tony Naughton
Additional contact information
Larry Li: Larry Li, School of Economics, Finance and Marketing, RMIT, Melbourne, Victoria 3000, Australia. E-mail: larry.li@rmit.edu.au
John Fowler: John Fowler, Melbourne Centre for Financial Studies, Melbourne, Victoria 3000, Australia.

Journal of Emerging Market Finance, 2008, vol. 7, issue 2, 197-214

Abstract: Our study of 531 Initial Public Offerings (IPOs) on the two Chinese Stock Exchanges during the period 1999 to 2004 indicates initial returns to investors of approximately 114.04 per cent and these earnings were sustained through the first month of trading. High initial returns on IPOs are most often characterised as a reflection of state policy acting with a view to longer-term economic gains and sound social policy. The sample IPOs were found to be oversubscribed by 243 times the share offered. Such a level of excess demand is a major factor in high initial returns to Chinese IPOs. Regression analysis indicated other major factors associated with these high initial returns including company size, offer size, general market conditions in the period of lead up to the first listing, the proportion of tradable-A shares available and the signal PE ratio at the time of offer. In addition, the paper emphasises the potential for very significant wealth effects, capital formation and development of a private capital market which arises from private sector gains linked to the IPOs.

Keywords: China; IPO underpricing; wealth transfers; JEL Classification: G14; JEL Classification: G32; JEL Classification: G38 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:7:y:2008:i:2:p:197-214

DOI: 10.1177/097265270800700204

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