Empirical study on initial public offering (IPO) underpricing and long-run performance: Evidence from China's A-share market

Abstract

This paper studies the underpricing and long-term performance of A-share initial public offerings (IPOs) in China from June 19, 2006 to June 30, 2007. The average underpricing of A-share IPOs is 107%, and the average abnormal returns over one and three years after listing are both significantly negative at the 1% level. Considering both market risks and stock risks, abnormal returns over one year cover the interval [-1.71, -0.54], and abnormal returns over three years cover [-1.54,-0.27]. The underpricing of A-share IPOs is significantly affected by market volatility,ex-ante uncertainty, lucky number ratio, and first day trading ratio. In the long run, aftermarket abnormal returns over one year are significantly determined by market volatility, ex-ante uncertainty and, to a lesser extent, initial excess returns. Overthree years, abnormal returns are driven by market volatility, offering price, ex-ante uncertainty and first day trading ratio. It is indicated that the initial excess returnsdoes not show any influences on abnormal returns. Key words: Initial public offering (IPO), underpricing, long-run performance, China’s A-share market.