How Does Export Affect the Market Returns of IPO Firms in China?

Abstract

This paper investigates the effects of export in the underpricing phenomenon of the Chinese IPO markets, using data from 1,285 IPO firms listed on the Shanghai and Shenzhen Exchanges from 1987 to 2015, and find that exports have a negative effect on initial returns. Second, the effect of exports on initial returns appears to be positive, but not statistically significant for government-owned firms and negative for private firms, that the effect of exports on IPO firms’ long-term performance is negative, and that the negative effect of exports on market returns lasts for years, which is quite surprisingly contradictory to general belief, since firms in China are supported by the government and generally performs better than non-exporting firms. The phenomenon of negative short-run and long-run performance of exporting IPO firms in China, an export-driven economy, is quite strange in that prior studies show a reversion in market returns for IPO firms in general: high initial returns mostly end up with low long-run returns, and vice versa, whose results are contradictory to those of notable previous studies.