Private Benefits in IPOs: Evidence from State-Owned Firms

The overseas listing puzzle: Post-IPO performance of Chinese stocks and ADRs in the U.S. market

“…Fig. 1 illustrates that the average first-day return on Chinese domestic IPOs is 137.4% (Chen et al, 2009), which is far above the average first-day returns on most of the European IPOs (less than 30%) and the average first-day returns on non-European IPOs (less than 40% except for Korea, Malaysia and India). Comparing to the average first-day return on the domestic U.S. which is only 16.8% (Ibbotson et al, 1994), the short-run abnormal return on Chinese domestic IPOs is so high that calls for further investigation.…”

Stop Bashing: Chinese Firms Even Have Better Financial Reporting Quality

“…Managers of state-controlled Chinese firms previously held important government positions and often have political career aspirations (Aharony et al, 2000;Chen Lee & Li., 2008). They are appointed by the government and have no significant shareholdings in their firms (Chen, Choi & Jiang., 2008). State shareholders do not pay much attention to stock prices.…”

“…Debt financing is infrequently used among the Chinese public firms(Wang & Yung, 2011) althoughFirth et al (2011) document a positive relationship between leverage and earnings management. Chinese managers have no significant shareholdings in their firms(Chen, Choi & Jiang, 2008). Option-based compensation did not exist until 2005; the use of options was minimal even after 2005(Conyon & He, 2012;Wang & Yung, 2011).…”

Cross-listing and pricing efficiency: The informational and anchoring role played by the reference price

“…The degree of underpricing varies widely across the global equity markets, and the Chinese stock market is among one of those with the highest levels of IPO underpricing. Chen et al (2008), among others, report an average underpricing of 165% for 1,394 IPOs in China between 1990 and 2005.…”

“…Tian (2011) argues that the government intervenes the IPO pricing process through setting a pricing cap and controls the IPO supply, contributing to extremely high underpricing. Chen et al (2008) maintain that the Chinese bureaus deliberately underprice the IPOs of stateowned enterprises to obtain a higher probability of being promoted. Fan et al (2007) argue that non-politically-connected CEOs underprice shares to signal their credible intention of relinquishing the control of their firms.…”