Institutional Environment, Firm Ownership and IPO First-Day Returns : Evidence from China

This paper examines how the difference in institutional environment across various provinces in China can explain IPO underpricing in the Chinese equity market. Using Chinese IPO data from 1999 to 2007, we find strong evidence that firms located in regions with better institutional environment (i.e., better credit market development, less governmental intervention and better legal environment) have significantly smaller IPO discounts than their counterparties. In addition private firms have less severe underpricing problems relative to state owned enterprises (SOEs). Finally, we find that local government controlled IPO firms have less severe underpricing problems than firms controlled by the central government