Article

China Accounting and Finance Review

, 18:13

First online:

Open Access This content is freely available online to anyone, anywhere at any time.

Deliberate IPO Underpricing or Market Misvaluation? New Evidence from China

  • J. Ginger MengAffiliated withDepartment of Business Administration, Stonehill College
  • , Wei ZhangAffiliated withCollege of Management and Economics, Tianjin University
  • , Gaofeng ZouAffiliated withCollege of Management and Economics, Tianjin University Email author 

Abstract

We study IPO initial returns in China’s new ChiNext market by examining 484 ChiNext IPOs from 2009 to 2015, and investigate the impact of the China Securities Regulatory Commission’s pricing and trading mechanism reform on the IPO market. We estimate IPO fair offering prices using the stochastic frontier approach, and decompose the IPO initial returns into a deliberate underpricing component and a market misvaluation component. We further analyse various factors affecting initial returns. Our results show that the irrationality of individual investors can drive post-IPO prices to deviate from fair values and lead to market misvaluation. The high IPO initial returns in China’s ChiNext market result primarily from market misvaluation rather than deliberate underpricing, consistent with other studies.

Keywords:

Initial Public Offering Underpricing Misvaluation