The impact of pricing mechanism reform on underpricing of initial public offerings in China

Abstract

Using a sample of initial public offerings (IPOs) (A-shares) at the Shanghai Securities Exchange from 2003 to 2007, we examine the effect of introducing the bookbuilding method upon IPO underpricing in China. The results show that after the pricing mechanism reform, the underpricing of IPOs was significantly higher than that of fixed price offerings. The possible reason is that underwriters have no discretionary allocation in the hybrid bookbuilding/open offer method.

Keywords:

• initial public offerings
• bookbuilding method
• underpricing
• fixed price offerings

JEL Classification:

• G34
• G38

Additional information

Funding

This work was supported by the Key Program of the National Natural Science Foundation of China [grant number 71431008], the National Natural Science Innovation Research Group of China [grant number 71221001], the National Nature Science Foundation of China [grant number 71301047], and the risk-oriented auditing research centre in Hunan province.