Investor sentiment, issuance cost, and IPO underpricing: an empirical analysis of Shanghai Stock Exchange A-shares

ABSTRACT

As the Chinese financial market has recently opened to the world, the high initial public offering (IPO) underpricing rate in the stock market has generated significant concern. This study investigates the impact of investor sentiment and issuing cost on the IPO underpricing rate after listing in various periods. We use the Shanghai Stock Exchange (SSE) A-shares data from 2014 to 2018 and the ordinary least squares (OLS) method to conduct the analysis. The results indicate that, in the first phases, investor sentiment is positively correlated, while the issuance cost is negatively correlated to the IPO underpricing rate. After the company’s listing, investor sentiment gradually becomes the main factor affecting the IPO underpricing rate, and its positive impact increases, while the negative impact of the issuance cost weakens slightly.

KEYWORDS:

• Initial public offering underpricing
• investor sentiment
• issuance cost
• China

JEL CLASSIFICATION:

• G12
• G14

Supplementary material

Supplemental data for this article can be accessed here

Acknowledgments

Yueqi Wang thanks Professor Zhenhua Zhang (School of Finance and Economics, Jiangsu University) for the discussion and suggestions in the data analysis.

Disclosure statement

The authors declare that they have no known competing financial interests or personal relationships that could appear to influence the work reported in this paper.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71701082]; China Postdoctoral Science Funds [2018M630534].