IPO pricing in the short and long run: evidence from the Shanghai stock exchange

Abstract

We analyze both initial underpricing and after-market performance of lPOs on the Shanghai Stock Exchange (SSE). Our results reveal that A-share lPOs were underpriced by an average of 217.8%, whereas the degree of underpricing for B-share lPOs averaged 29.8% Despite the different patterns in the after-market performance of A- and B-shares, there is no significant underperformance over the first 18-month period. This is in contrast with evidence from many developed countries such as USA (Ritter, 1991), Australia (Lee et al, I 996) and Germany (Ljungqvist, 1997). While the theory of ex ante uncertainty gai ns overwhelming support in explaining! PO initial underpricing, it is not as successful in explaining IPO long-run performance on the SSE. Our findings suggest that unique institutional characteristics of the Chinese stock market might have played an important role in IPO performance.