Could the introduction of high-speed railway inhibit the IPO underpricing in China?

ABSTRACT

This study examines the high-speed railway (hereinafter referred to as ‘HSR’)’s impact on initial public offering (hereinafter referred to as ‘IPO’) underpricing by using a large sample of IPO firms in China. By using the reduced-form difference-in-difference method, we find that the introduction of HSR significantly reduces the IPO underpricing, and the effect is more pronounced in the firms with auditors from different regions, and the firms in regions with better institutional environment.

KEYWORDS:

• High-speed railway
• IPO underpricing
• China
• difference-in-difference method

JEL CLASSIFICATION:

• G14
• O33
• R41

Acknowledgments

We thank the financial support from the China National Natural Science Foundation (CNNSF, grant no. 71602054), Hunan Province Natural Science Foundation of China (grant no. 2017JJ3043), all errors are ours.

Disclosure statement

No potential conflict of interest was reported by the authors.

Supplementary material

The supplemental data for this article can be accessed here.

Notes

¹ IPO underpricing means that the secondary market trading price of a stock is on average higher than its IPO price. Boulton, Smart, and Zutter (2011) documents that the average IPO underpricing during 1998 to 2008 in the U.K. and U.S. is 17.65% and 33.9%, while China has the largest underpricing magnitude of 120.72% among all the 37 countries..

² The formal institution ranges from the legal system, government regulation to the credit market development, the informal institution denotes the social trust, the culture, etc.

³ China has a price limit for the secondary market with 10% up and down ceiling.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71602054]; Natural Science Foundation of Hunan [2017JJ3043].