Operating Performance and Its Relationship to Market Performance of Chinese Initial Public Offerings

Jing Chi and Carol Padgett

Chinese Economy, 2006, vol. 39, issue 5, 28-50

Abstract: We investigate the operating performance changes of initial public offerings (IPOs) and the relation between operating performance and both short-run underpricing and long-run market returns of IPOs. We find that listing causes a significant deterioration in profitability, sales-growth rates, and efficiency, and brings a significant increase in sales and a significant decrease in leverage. We also find underpricing has insignificant explanatory power in predicting post-issue operating performance, which suggests that the signaling hypothesis does not explain underpricing very well in Chinese IPO markets. Using a cross-sectional analysis, we find firms with higher return on assets (ROA), smaller size (lower sales), higher sales-growth rates, higher asset turnover, and higher debt-to-asset ratios enjoy higher long-run market returns.

Date: 2006
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