Investment Banks' Entry into New IPO Markets and IPO Underpricing

Simon Yu Kit Fung (), Ferdinand Gul () and Suresh Radhakrishnan ()
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Suresh Radhakrishnan: School of Management, University of Texas at Dallas, Richardson, Texas 75083

Management Science, 2014, vol. 60, issue 5, 1297-1316

Abstract: We examine the relationship between investment banks' initial public offering (IPO) market shares and their prior IPO underpricing in the new IPO market for China-based companies on the Hong Kong Stock Exchange. To gain expertise in Chinese business practices, investment banks have the incentive to obtain business in this new IPO market by providing high offer prices to the issuer, leading to less underpricing and less money on the table. We hypothesize and find that the less an investment bank underprices China-based company IPOs, the greater its subsequent market share of China-based company IPOs in the Hong Kong Stock Exchange. Furthermore, this relationship is driven by a bank's initial China-based company IPO deals. These results suggest that in new IPO markets, investment banks' initial market shares, obtained through lower underpricing, help them grow their market shares in later periods, possibly through the expertise gained in the initial business. This paper was accepted by Mary Barth, accounting .

Keywords: IPO underpricing; market share; investment banks; Hong Kong (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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