Abstract
This study examines how initial public offering (IPO) underpricing is affected by geographic distance. Specifically, our analysis investigates whether firms which are located greater distances from major financial centers experience greater underpricing at IPO. We also apply signaling theory to explain how IPO firm associations signal quality thereby reducing the effects of distance on underpricing. Using a sample of 1020 Chinese firms that went IPO between 2007 and 2012, we find that remote firms experience greater IPO underpricing. Additionally, firm associations with government or a prestigious lead underwriter, but not venture capital investors, can signal firm quality and reduce IPO underpricing experienced by more remote firms which are more likely to face greater information asymmetry costs.
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