Legal protection and underpricing of IPOs: Evidence from China

Jianlei Liu, Konari Uchida and Ruidong Gao

Pacific-Basin Finance Journal, 2014, vol. 27, issue C, 163-187

Abstract: Chinese data enable investigation of the relationship between underpricing of initial public offerings (IPOs) and legal protection with controlling for time-invariant characteristics of regions. Our investigation of Chinese IPOs between 1997 and 2009 shows that firms from a province with more developed legal framework experience less underpricing after controlling for time-invariant, province-fixed effects. We also find that the extent of underpricing is decreased by the strength of legal protection of property rights. Importantly, these tendencies are evident only after the introduction of a book-building system, which provides issuers and underwriters with discretion on offering price determination. These results offer robust evidence that legal protection mitigates ex ante uncertainty regarding property rights protection, and thereby, reduces underpricing.

Keywords: IPO; Underpricing; Legal protection; China (search for similar items in EconPapers)
JEL-codes: G30 G32 G38 K22 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:27:y:2014:i:c:p:163-187

DOI: 10.1016/j.pacfin.2014.02.006

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