Economic freedom and IPO underpricing

Yibiao Chen (), Steven S. Wang (), Wilson H. S. Tong () and Hui Zhu ()
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Yibiao Chen: Agriculture Bank of China International Securities Co Ltd. Central
Steven S. Wang: School of Business, Renmin University of China
Wilson H. S. Tong: The Hong Kong Polytechnic University
Hui Zhu: Zhejiang University of Finance and Economics

Frontiers of Business Research in China, 2017, vol. 11, issue 1, 1-22

Abstract: Abstract This paper examines how the difference in institutional environments constitutes differential IPO underpricing across countries. Using the Heritage Foundation’s Index of Economic Freedom (IEF) as a proxy for the heterogeneous institutional environment, and a sample of 3728 IPOs from 22 countries and regions over the period 1993–2014, we find that countries with higher economic freedom have significantly less serious IPO underpricing problems. Moreover, we find that among the 10 economic freedom factors covered by theIEF, financial freedom related factors play a more important role in reducing the IPO underpricing problem. Finally, consistent with the market sentiment hypothesis, we find strong evidence that pre-IPO market sentiment influences IPO first-day returns, and that the IPO underpricing problem is less severe when the market is bearish.

Keywords: IPO underpricing; Institutional environment; Economic freedom (search for similar items in EconPapers)
JEL-codes: G14 G15 G30 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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DOI: 10.1186/s11782-017-0019-1

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