Long‐Run Performance of Chinese Initial Public Offerings: Further Evidence*

Abstract

AbstractThis study examines the long‐run performance of 936 Chinese initial public offerings (IPOs) over the period 1996 to 2005 (the post‐issue return evidence ends in June 2008). Using a number of empirical methods, including event‐time and calendar‐time approaches based on a size and industry matching firm benchmark, we find a significant long‐run overperformance using the equal‐weighted buy‐and‐hold abnormal returns, although not for the value‐weighted returns, suggesting that the performance of small‐size IPO firms is superior to that of large‐size IPO firms. The significant overperformance disappears, however, when using cumulative or calendar‐time abnormal returns. The preset study provides out‐of‐sample evidence in an emerging market context in support of Fama's (1998) argument that reported long‐run performance is sensitive to the method of analysis. Finally, based on a rich set of explanatory factors as proxies for both signaling and ex‐ante uncertainty characteristics, our results are supportive of the signaling hypothesis, but inconsistent with the divergence of opinion hypothesis.