Legal protection and underpricing of IPOs: Evidence from China

Jianlei Liu, Konari Uchida, Ruidong Gao

Research output: Contribution to journalArticle

10 Citations (Scopus)

Abstract

Chinese data enable investigation of the relationship between underpricing of initial public offerings (IPOs) and legal protection with controlling for time-invariant characteristics of regions. Our investigation of Chinese IPOs between 1997 and 2009 shows that firms from a province with more developed legal framework experience less underpricing after controlling for time-invariant, province-fixed effects. We also find that the extent of underpricing is decreased by the strength of legal protection of property rights. Importantly, these tendencies are evident only after the introduction of a book-building system, which provides issuers and underwriters with discretion on offering price determination. These results offer robust evidence that legal protection mitigates ex ante uncertainty regarding property rights protection, and thereby, reduces underpricing.

Original languageEnglish
Pages (from-to)163-187
Number of pages25
JournalPacific Basin Finance Journal
Volume27
Issue number1
DOIs
Publication statusPublished - Jan 1 2014

Fingerprint

Initial public offerings
China
Underpricing
Legal protection
Property rights
Legal framework
Underwriters
Price determination
Discretion
Fixed effects
Uncertainty
Bookbuilding

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

Legal protection and underpricing of IPOs : Evidence from China. / Liu, Jianlei; Uchida, Konari; Gao, Ruidong.

In: Pacific Basin Finance Journal, Vol. 27, No. 1, 01.01.2014, p. 163-187.

Research output: Contribution to journalArticle

Liu, Jianlei ; Uchida, Konari ; Gao, Ruidong. / Legal protection and underpricing of IPOs : Evidence from China. In: Pacific Basin Finance Journal. 2014 ; Vol. 27, No. 1. pp. 163-187.
@article{ca7a12c366dc43709eaf5b9cecfa6b6d,
title = "Legal protection and underpricing of IPOs: Evidence from China",
abstract = "Chinese data enable investigation of the relationship between underpricing of initial public offerings (IPOs) and legal protection with controlling for time-invariant characteristics of regions. Our investigation of Chinese IPOs between 1997 and 2009 shows that firms from a province with more developed legal framework experience less underpricing after controlling for time-invariant, province-fixed effects. We also find that the extent of underpricing is decreased by the strength of legal protection of property rights. Importantly, these tendencies are evident only after the introduction of a book-building system, which provides issuers and underwriters with discretion on offering price determination. These results offer robust evidence that legal protection mitigates ex ante uncertainty regarding property rights protection, and thereby, reduces underpricing.",
author = "Jianlei Liu and Konari Uchida and Ruidong Gao",
year = "2014",
month = "1",
day = "1",
doi = "10.1016/j.pacfin.2014.02.006",
language = "English",
volume = "27",
pages = "163--187",
journal = "Pacific Basin Finance Journal",
issn = "0927-538X",
publisher = "Elsevier",
number = "1",

}

TY - JOUR

T1 - Legal protection and underpricing of IPOs

T2 - Evidence from China

AU - Liu, Jianlei

AU - Uchida, Konari

AU - Gao, Ruidong

PY - 2014/1/1

Y1 - 2014/1/1

N2 - Chinese data enable investigation of the relationship between underpricing of initial public offerings (IPOs) and legal protection with controlling for time-invariant characteristics of regions. Our investigation of Chinese IPOs between 1997 and 2009 shows that firms from a province with more developed legal framework experience less underpricing after controlling for time-invariant, province-fixed effects. We also find that the extent of underpricing is decreased by the strength of legal protection of property rights. Importantly, these tendencies are evident only after the introduction of a book-building system, which provides issuers and underwriters with discretion on offering price determination. These results offer robust evidence that legal protection mitigates ex ante uncertainty regarding property rights protection, and thereby, reduces underpricing.

AB - Chinese data enable investigation of the relationship between underpricing of initial public offerings (IPOs) and legal protection with controlling for time-invariant characteristics of regions. Our investigation of Chinese IPOs between 1997 and 2009 shows that firms from a province with more developed legal framework experience less underpricing after controlling for time-invariant, province-fixed effects. We also find that the extent of underpricing is decreased by the strength of legal protection of property rights. Importantly, these tendencies are evident only after the introduction of a book-building system, which provides issuers and underwriters with discretion on offering price determination. These results offer robust evidence that legal protection mitigates ex ante uncertainty regarding property rights protection, and thereby, reduces underpricing.

UR - http://www.scopus.com/inward/record.url?scp=84896379925&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84896379925&partnerID=8YFLogxK

U2 - 10.1016/j.pacfin.2014.02.006

DO - 10.1016/j.pacfin.2014.02.006

M3 - Article

AN - SCOPUS:84896379925

VL - 27

SP - 163

EP - 187

JO - Pacific Basin Finance Journal

JF - Pacific Basin Finance Journal

SN - 0927-538X

IS - 1

ER -