The Impact on IPO Performance of Reforming IPO Allocation Regulations: An Event Study of Shanghai Stock Exchange A-Shares

Fei Jiang and Lawrence Leger

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: Initial public offerings in China are distinguished from IPOs in other markets by their extremely high abnormal initial returns and so-called 'Chinese Characteristics'. We examine the effect on IPO underpricing and short-run performance of significant changes in Chinese IPO regulations implemented in May 2002. The significant event was a regulatory change in the method of allocating IPO shares. Event study analysis reveals that abnormal initial returns decreased by 43.3% after the change in regulations, that beta risks of the IPOs increased and that an evenly-upward trend of cumulative abnormal initial returns was reversed to become evenly-downward. The results appear to be consistent with Information Cascades (Welch 1992) and Bandwagon (Ritter 1998) models of underpricing.

Keywords: IPO underpricing; IPO allocation; Policy impact; Chinese stock market; Shanghai Stock Exchange A-shares. (search for similar items in EconPapers)
JEL-codes: G14 G28 (search for similar items in EconPapers)
Date: 2009-02, Revised 2009-02
New Economics Papers: this item is included in nep-cna and nep-tra
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