Economics at your fingertips  

Underwriters' allocation with and without discretionary power: Evidence from the Hong Kong IPO market

Khelifa Mazouz, Abdulkadir Mohamed, Brahim Saadouni and Shuxing Yin

International Review of Financial Analysis, 2017, vol. 49, issue C, 128-137

Abstract: This study uses a unique and extensive data set from the Hong Kong IPO market to examine the theory of adverse selection under two distinct regulatory regimes in relation to underwriters' discretionary power in IPO share allocation. Consistent with Rock's (1986) theory of adverse selection in the IPO market, we show that, prior to the introduction of the clawback provision; retail (uninformed) investors were allocated more of the overpriced offerings and less of the underpriced issues. However, after the provision is implemented, retail investors have been allocated significantly more of the underpriced offerings and less of the overpriced ones. Overall, we find that allocation-adjusted initial returns for the retail investors are lower (higher) than the risk-free rate pre- (post-) clawback provision. These findings imply that the mandatory clawback provision has enhanced the fairness in IPO share allocations among different investor groups and has reduced the winner's curse in the IPO market.

Keywords: Mandatory clawback; Adverse selection; Allocation-adjusted returns (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Series data maintained by Dana Niculescu ().

Page updated 2017-09-29
Handle: RePEc:eee:finana:v:49:y:2017:i:c:p:128-137