Regulated price and Demand in China’s IPO market
Geertsema, Paul Lu, Helen
Geertsema, Paul
Lu, Helen
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Journal article with impact factor
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Publication Year
2019-11
Journal
Journal of Economics and Business
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Publication Volume
106
Publication Issue
October
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Abstract
We use simultaneous equations to model the bi-directional causality between IPO initial returns and oversubscription ratios in China. We find that the causality is one-directional from oversubscription ratios to IPO initial returns in the post-reform period (2005–2015), which is consistent with a demand effect. By contrast, a demand effect did not exist in the pre-reform period (1996–2004). Our findings suggest that the 2005 reform of the IPO pricing mechanism has allowed IPO prices to be determined by market forces in China.
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Keywords
3801 Applied Economics, 35 Commerce, Management, Tourism and Services, 38 Economics, 3501 Accounting, Auditing and Accountability, 3502 Banking, Finance and Investment