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Regulated price and Demand in China’s IPO market

Paul Geertsema and Helen Lu

Journal of Economics and Business, 2019, vol. 106, issue C

Abstract: We use simultaneous equations to model the bi-directional causality between IPO initial returns and oversubscription ratios in China. We find that the causality is one-directional from oversubscription ratios to IPO initial returns in the post-reform period (2005–2015), which is consistent with a demand effect. By contrast, a demand effect did not exist in the pre-reform period (1996–2004). Our findings suggest that the 2005 reform of the IPO pricing mechanism has allowed IPO prices to be determined by market forces in China.

Keywords: Initial public offering; Initial returns; IPO underpricing; IPO oversubscription; Simultaneous equations; A-share markets (search for similar items in EconPapers)
JEL-codes: G15 G24 C01 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.jeconbus.2019.105846

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