Volatile market condition, institutional constraints, and IPO anomaly: evidence from the Chinese market

Abstract

We provide a holistic view of factors affecting IPO underpricing and aftermarket trading of Chinese initial public offerings (IPOs) over 23 years. The subscription ratio and offer amount are among the top three most important determinants of underpricing when stock markets are less volatile. However, the recent IPOs’ initial return and institutional constraints on offer price and aftermarket trading price are the driving forces in volatile markets. The underpricing (the first‐day trading price limit) is the most important factor affecting IPO aftermarket trading when stock markets are less (more) volatile, suggesting how factors affect IPO underpricing and aftermarket trading depends on stock market conditions.

Cross-influence of information and risk effects on the IPO market: exploring risk disclosure with a machine learning approach

“…From the perspective of risk effect, at the semantic level, the higher the semantic novelty of IPO prospectus risk disclosure, the lower the risk perception of investors, the lower the underpricing rate, and the lower the first-day market return. At the content level, the higher the richness of the risk disclosed in the IPO prospectus, the lower the risk perception of investors, the lower the underpricing rate, and the lower the first-day market return (Li et al, 2021a , b ). From the perspective of the information effect, at the semantic level, the higher the semantic novelty of prospectus risk disclosure, the lower the degree of information asymmetry between enterprises and investors, the lower the underpricing rate, and the lower the first-day market return.…”

“…Secondly, this paper reveals the important impact of unstructured text information on the market, which is helpful for us to fully and objectively understand the impact of risk disclosure text on the efficiency of market resource allocation. However, it is not enough to measure only novelty and risk content, which may be affected by many factors, and more factors can be taken into consideration in the future (Boroon et al, 2021 ; Changchit et al, 2021 ; Fu et al, 2021 ; Huang et al, 2021a , b ; Islam et al, 2021 ; Li et al, 2021a , b ; Vali et al, 2021 ; Wang et al, 2021 ; Zhang et al, 2021a , b ; Zhang, Ye et al, 2021). Third, different market participants’ perception levels of risk and investment decision-making ability may have an impact on the results.…”

IPO suspension and pricing: Evidence from China

“…Following Shi et al (2018), we specify the first suspension as stretching from 3 November 2012 to 13 December 2013 in Panel A of Table 5. Likewise, we follow Li, Liu, et al (2021) and specify the first suspension over the period from 3 November 2012 to 17 January 2014. We use the same sample selection method as in the baseline analysis and replicate the baseline regression.…”

“…In the baseline analysis, we rely on news articles and assume that the first suspension started on 16 November 2012 and ended on 30 December 2013, and the second happened over the period from 4 July 2015 to 6 November 2015. As part of the robustness check, we borrow from Shi et al (2018) and Li, Liu, et al (2021) to examine whether our baseline results are sensitive to the specification of suspension periods. Following Shi et al (2018), we specify the first suspension as stretching from 3 November 2012 to 13 December 2013 in Panel A of Table 5.…”

“…We obtain the timeframe of each suspension session from news articles published by the main financial news outlets (including Sohu Finance and Sina Finance) in China. Sohu Finance and Sina Finance are the Chinese equivalents of Yahoo Finance.6 We note that our start and end dates of the first suspension are slightly different from those used byLi, Liu, et al (2021) andShi -et al (2018). As they do not disclose in their paper the source of their information, we follow Sohu Finance and Sina Finance in the main analysis to ensure the verifiability of our results.…”