Abstract
Oil is regarded as a crucial energy source impacting firms’ production, investments, and even financing. In this study, we investigate the relationship between oil price uncertainty and underpricing of initial public offerings (IPOs). Using a sample of IPO firms in the Chinese A-share market between 2010 and 2022, we demonstrate that oil price uncertainty is positively associated with IPO underpricing. The transmission mechanism suggests that oil price uncertainty increases information asymmetry, prompting IPO firms to use underpricing to signal their profitability and ensure the participation of investors. Moreover, the positive relationship between oil price uncertainty and IPO underpricing is strengthened in state-owned enterprises and is weakened in firms with enhanced corporate governance. We contribute to the existing literature by establishing a new link between oil price uncertainty and IPO underpricing.
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