TY - JOUR
T1 - Provincial economic performance and underpricing of IPOs
T2 - Evidence from political interventions in China
AU - Liu, Jianlei
AU - Uchida, Konari
AU - Li, Yuan
N1 - Funding Information:
The Project is financially supported by the National Social Science Fund of China (16CJY040) and JSPS KAKENHI Grant Number JP19H01507.Underpricing is costly for issuers who are unwilling to discount their shares to spur the regional economy. However, local government officials can influence IPO companies, since the IPO process is still closely regulated by the Chinese government (Li and Zhou, 2005, 2015; Piotroskia and Zhang, 2014; An et al., 2016; Bao et al., 2016; Chen et al., 2018). The central government controls IPOs as a scarce resource, and then distributes the issuance resources to provincial or municipal levels. The China Securities Regulatory Commission (CSRC) will not review IPO applications that have not been nominated by the local government. CSRC officials need to ask the provincial government about the proposed issue during the examination process. Then, they submit the IPO application to the Stock Issuance Examination and Verification Committee (SIEVC) for further examination and verification. The committee will also communicate with the provincial government regarding the issuer.3 Thus, the approval and support of local governments are crucial for companies in the IPO process. Furthermore, firms need local government support on various issues in the IPO process, such as taxation, land, and choice and coordination of intermediary agents. Previous studies suggest that political connections provide Chinese companies with various benefits, such as approval of new equity issues (Li et al., 2011; Piotroski and Zhang, 2014; Bao et al., 2016; Chen et al., 2017). Taken all together, Chinese IPO firms have an incentive to follow the local government's requests for regional economic growth.
PY - 2020/3
Y1 - 2020/3
N2 - We examine the underpricing of 2,131 Chinese initial public offerings (IPOs) between 2005 and 2017. The results indicate that state-owned enterprises (SOEs) controlled by the local government (local SOEs) offer significantly higher underpricing when they go public than SOEs controlled by the central government and non-SOEs do. This phenomenon is evident for local SOEs from less developed provinces, after controlling for the direct effect of regional economic performance. These results suggest local government officials underprice initial public offerings to make regional companies successfully go public to promote the regional economy.
AB - We examine the underpricing of 2,131 Chinese initial public offerings (IPOs) between 2005 and 2017. The results indicate that state-owned enterprises (SOEs) controlled by the local government (local SOEs) offer significantly higher underpricing when they go public than SOEs controlled by the central government and non-SOEs do. This phenomenon is evident for local SOEs from less developed provinces, after controlling for the direct effect of regional economic performance. These results suggest local government officials underprice initial public offerings to make regional companies successfully go public to promote the regional economy.
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U2 - 10.1016/j.econmod.2019.09.055
DO - 10.1016/j.econmod.2019.09.055
M3 - Article
AN - SCOPUS:85073148073
VL - 86
SP - 274
EP - 285
JO - Economic Modelling
JF - Economic Modelling
SN - 0264-9993
ER -