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Confucianism and IPO underpricing

Haiming Liu and Yao-Min Chiang

Pacific-Basin Finance Journal, 2022, vol. 71, issue C

Abstract: Previous studies show culture has an impact on IPO underpricing. Can Confucianism being a traditional culture system in China affect underpricing of Chinese IPOs? If yes, through what channels? This paper affirms the impact of Confucianism on IPO underpricing using a large sample in China. Results show that Confucianism can reduce IPO underpricing. This effect is more pronounced for non-state-owned firms and firms located in regions with weak investor protection. To investigate which channels of Confucianism affecting underpricing, we find that Confucianism can improve financial reporting quality and stock price informativeness, which is consistent with information asymmetry channel. We also find that Confucianism at underwriter's headquarter can decrease issuing firms' underpricing, consistent with rent seeking channel. We also find that Confucianism can reduce managers' agency costs, which is consistent with agency cost channel. Our results hold after considering alternative proxies for underpricing and proxies for Confucianism, controlling for the influence of formal institutions or other informal institutions, and employing instrumental variables in two-stage least squares regression.

Keywords: IPO underpricing; Confucianism; Informal institution; Information asymmetry; Rent seeking (search for similar items in EconPapers)
JEL-codes: G14 G15 G18 G24 G32 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:71:y:2022:i:c:s0927538x21002080

DOI: 10.1016/j.pacfin.2021.101701

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