Empirical Study on the Performance of Initial Public Offerings in China
- 1 Graduate School of Economics and Business Administration, Hokkaido University, Japan, 060-0809
Abstract
We study the long-run performance of 166 IPOs listed on China’s Shanghai Stock Exchanges from 2000 to 2002. We find that the average market-adjusted cumulative return and buy-and-hold return over the three years after listing are -32.02% and -20.88%, which are both significantly negative. What’s more, as an additional robustness check, we cal-culate wealth relatives. One year after listing, WR less than 1 and we obtain a three-year wealth relative of 0.6826, consistent with the CAR and BHAR estimates. We then use a cross-sectional analysis to explain the long-run underper-formance of Chinese IPOs. The results show that the aftermarket performance is positive after listing (6 months) but thereafter returns decline. Buying A-share IPOs immediately after listing and holding the investment for three years results in negative returns and wealth relatives less than one.
- Aggarwal, R., R. Leal and L. Hernandez, 1993, The After-market Performance of Initial Public Offerings in Latin America, Financial Management, Vol,22, pp.42-53.
- Barber B.，Lyon，J.1997) Detecting long-run abnor-mal stock returns: the empirical power and Specification of test statistics, Journal of Financial Economics,Vol.43, pp.341-372.
- Cai, J., and K.Wei.1997. The investment and operating performance of Japanese IPO, Pacific Basin Finance Journal, Vol.5, pp.389-417.
- Chan, K., J.B. Wang and K.C. Wei, 2004, Underpricing and Long-term Performance of IPOs in China, Journal of Corporate Finance, Vol.10, pp.409-430.
- Fama, E.F., 1998, Market Efficiency, Long-term Re-turns, and Behavioral Finance, Journal of Financial Economics, Vol .49, pp.283-306.
- Hanley, K. 1993, The Underpricing of initial public offerings and the partial adjustment phenomenon. Jour-nal of Financial Econ, Vol. 34, pp.213–250.
- Keloharju, M.1993. The winner’s curse, legal liability,and the long-run price performance of initial public of-ferings in the Finland. Journal of Financial Economics, Vol.34, pp.251-277.
- Kim, J., I, Krinsky, and J.Lee.1995 The aftermarket performance of initial public offerings in Korea, Pacific Basin Finance Journal,Vol.3, pp.429-448.
- Kooli,M., and J.M.Suret 2003. The aftermarket per-formance of Canadian IPOs. Journal of Multinational Financial Management: Forthcoing.
- Kothari, S.P. and J.B. Warner, 1997, Measuring Long-horizon Security Price Performance, Journal of Financial Economics Vol.43, pp.301-340.
- Loughran,Tim, Jay R.Ritter, Kristian Rydqvist(1994), “Initial Public offerings: International Insights”, Pacific Basin Finance Journal,Vol.2, pp.165-199.
- Levis, M., 1993, The Long-run Performance of Initial Public Offerings: The UK Experience 1980-1988, Fi-nancial Management, Vol, 22, pp.28-41.
- Ljungqvist, A.1997. Pricing initial public offerings: Futher evidence from Germany. European Economic Review, Vol.41, pp.1309-1320.
- Loughran, Tim, Ritter J. (1995) “the new issues puzzle”, Journal of Finance, Vol.50, pp.23-51.
- Loughran, T., J.R. Ritter and K. Rydqvist, 1994, Inter-national Public Offerings: International Insights, Pa-cific-Basin Financial Journal, Vol. 2, pp.165-199.