The Determinants and Consequences of IPOs in a Regulated Economy : Evidence from China

Different from developed markets, Chinese government imposes strict control over the IPO market. Using a sample of 156 monthly returns over the period of 1996 to 2008, we find a positive relationship between the monthly issuing size and prior market return, suggesting that government decides the timing and size of issuance based on prior market condition. Different from previous findings, we find no evidence of decline in subsequent market return after IPO. However, IPO issuance has a significantly negative impact on the return momentum effect, while the degree of impact is indifferent to issuing size. We conjecture that the overall mild impact on subsequent market results from the government control over the IPO market