The Long-run Performance of Chinese Private Firm IPOs

Abstract

This paper examines the three-year long run performance of Initial Public Offerings (IPOs) in the Chinese stock markets from 2002 to 2012. We find that private firm IPO long-term returns are significantly higher than those of non-private firms, measured by both cumulative abnormal returns (CARs) and buy-and-hold abnormal returns (BHARs). Furthermore, the long-term performance of IPOs in the Chinese stock markets seems to have a significant upward tendency after the Non-tradable share (NTS) reform launched in 2005. However, private firm IPO long-run outperformance has experienced a diminishing increase after the NTS reform. This result indicates that state-owned enterprises turn to be more market-oriented after the NTS reform.

The long-run performance of SME IPOs in India: empirical evidence from Indian stock market

“…Supporting the theories, Durukan (2002) and Giovannini (2010) reported a positive relationship between debt-equity ratio and long-run performance of SME IPOs. On the contrary, Liu et al (2012) and Chi et al (2015) reported a negative relationship between the two on the pretext of their vulnerability to financial distress. Based on the above findings, the study hypothesizes that:…”

“…The positive relation of underpricing with long-run returns though contradicts market overreaction/fad hypothesis stands in consonance with the theorists who theorize that firms use underpricing as a signaling device to communicate firm’s true value to investors (Allen and Faulhaber, 1989; Welch, 1989). As underpricing is a cost to the issuing firm, Levis (1993) and Chi et al (2015) argues that only the firms with good quality can bear the cost of underpricing and this good quality translates into investor positive sentiment in issue, leading to higher long-run returns. All models of Table 4 and Models 2, 3 and 4 of the table 5 reflect these findings.…”

“…Within Mauritius settings, Agathee et al (2014) found insignificant association between IPOs issued in hot market, firm size, underpricing and long-run performance of 44 IPOs. Chi et al (2015) study in China found a positive association between underpricing and long-run performance and negative association between debt-equity ratio and long-run performance of IPOs. In the Indian SME context, firm age and underpricing documented negative relationship with long-run performance of SME IPOs, whereas the study confirmed positive relationship between underwriter reputation, firm size and long-run performance of SME IPOs (Bhattacharya, 2017).…”

“…Extending this theory, Bhattacharya (2017) chronicled a negative relationship between the two. However, few studies have also reported a positive relationship between underpricing and long-run returns indicating that firms use underpricing as a tool to signal firm quality to investors (Levis, 1993;Alvarez and Gonzalez, 2005;Chi et al, 2015). On the other hand, Ritter (1991) and Agathee et al (2014) reported an insignificant relationship between the two.…”