Empirical research on the underpricing of initial public offerings in China

Abstract

In December 2004, the bookbuilding method was introduced in the Chinese IPO market and the PE ratio restriction was abolished. The purpose of the study is to examine whether the IPO shares after reform are priced efficiently so that the different levels of underpricing can be explained rationally by economic variables for information asymmetry theory. The result of the study revealed that only a small portion of the underpricing could be explained by the information asymmetry theory in either the pre or post liberalization periods. The possible reason is the pricing process of the unseasoned shares in China is still under the influence of the government authorities such as the equity division regulation and allocation restriction.