We examine a unique phenomenon among exchange traded funds (ETFs) in the Chinese stock market, finding that ETFs pervasively participate in initial public offerings (IPOs) to profit from underpricing. The ETF IPO participation passes primary market benefits to retail investors, providing benefits from hard-to-reach investment opportunities. These active moves showing ETFs are not entirely passive highlight the gains of the active management. However, we observe that this activity leads to increased non-fundamental volatility and short-term return reversals, as well as decreased investment-q sensitivity among ETF member stocks, presenting a negative externality. Using a policy shock as the quasi-natural experiment, we establish the causality of these effects, underscoring the dual nature of ETFs active management.

Using three natural experiments, we test the hypothesis that investor overconfidence produces overpricing of high idiosyncratic volatility stocks in the presence of binding short-sale constraints. We study three events: IPO lockup expirations, option introductions, and the 2008 short-sale ban on financial firms. Consistent with our prediction, we show that when short-sale constraints are relaxed, event stocks with high idiosyncratic volatility tend to experience greater price reductions, as well as larger increases in trading volume and short interest, than those with low idiosyncratic volatility. These results hold when we benchmark event stocks with non-event stocks with comparable idiosyncratic volatility. Overall, our findings suggest that biased investor beliefs and binding short-sale constraints contribute to idiosyncratic volatility overpricing.

Culture and experience associate A with superior quality. In the marketing of dual-class IPOs, issuers are mindful of this preference. For years after IPO issuance, inferior voting rights shares labeled Class A enjoy higher market valuations and smaller voting premiums than do Class B shares.

Purpose – To examine whether and how the different levels of regional economic incentives would have an effect on underwriters’ market share in general. Design/methodology/approach – Drawing on Chinese IPO firms during the period 2006-2016, this study examines the impact of different levels of regional economic incentives on underwriters’ market share. Findings – The authors find thatregional economic incentives have a positive impact on underwriters’ market share and that local economic incentives have a significantly strongerimpact than central economic incentives. Furthermore, the authors find that IPO firms with underwriters driven by regional economic incentives experience worse post-IPO performance than firms with underwriters driven by central economic incentives, which do not experience a significant decline in post-IPO performance. Originality/value – Taken together, the authors’ findings are consistent with the notion that performance assessment motivates officials at various levels of government to bring companies in their jurisdiction to the IPO market prematurely. In addition, the results indicate that central economic incentives play a significantrole in driving China’s macroeconomic development and market-oriented system reforms. As such, they are one of the major driving forces behind China’s market-oriented system reforms.

We study the role of Chinese government guidance funds (GGFs) in value creation for investee firms. Using a sample of 2,855 firms that went public during the period of 2010-2021, we show that GGF-backed IPO firms had higher initial returns than non-VC-backed IPO firms and nonGGF VC-backed IPO firms. After decomposing the initial return into IPO underpricing and market overvaluation, we find that GGF-backed firms enjoyed higher overvaluation and lower underpricing than other firms. Consistent with investor sentiment and information asymmetry hypothesis, our results indicate that public investors value the benefits of political resources more than the costs of government interference associated with GGF sponsoring. However, GGF-backed firms did not outperform other-VC-backed firms when post-IPO long-term stock, operating and innovation performance is assessed. The divergence in the effects of GGFs observed in the financial and product markets reveals the complexity in evaluating the role of GGFs in value creation.

The Chinese earnings yield differential relative to the U.S. switches from negative to positive around 2009, with the aggregate variation masking substantial cross-sector variation. Changes in sectoral composition and (changing) growth expectations are not important determinants of the variation in China-U.S. valuation differentials. Instead, changes in ownership structure, and most importantly cross-sectional and temporal variation in financial openness, are the key contributors. In addition, we show that IPOs in the banking sector and its internationalization played a critical role in the (relative) valuation change.

区域股权市场是我国多层次资本市场体系下的拟上市企业规范辅导平台，能够对公司进行优化培育，为未来上市做好准备，企业也可以在此获得一定的公众关注度，提升社会影响力。本文以 2010 年 1 月-2022 年 4 月从区域股权市场转板至交易所上市的公司为研 究对象，基于倾向得分匹配模型选取样本，实证研究了公司“转板”对首发后股价及其收益波动率的影响，并进一步探讨投资者关注度在其中的作用机制。回归结果表明，“转板”公司的开板日 IPO 抑价更高，且在上市后的一年内高抑价持续显著，此外“转板”公司短期内的股票收益波动率也更高。机制检验结果显示，公众投资者关注度在“转板”对 IPO 抑价和收益波动的影响中发挥传导用，而机构投资者关注度无此效应。

This article aims to provide an in-depth and comprehensive analysis of PRC Securities Law 2020 which overhauls China’s securities regulatory framework to construct more efficient and transparent capital markets with enhanced investor protection and market integrity. The law constrains regulators’ administrative powers in deciding the outcome of IPOs as well as streamline the securities offering procedure. This article pays attention to key reform initiatives proposed by PRC Securities Law 2020, such as the registration-based IPO system, the enhanced investor protection and compensation regime, the cross-border supervision, and the harsher punishments for securities frauds. It also discusses the latest enforcement cases relating to high-profile financial frauds like the Luckin Coffee scandal which resulted in Luckin Coffee being delisted from NASDAQ in 2020. The analysis in the article is accompanied by relevant US securities law in the same area to offer a comparative angle, which is of interest to practitioners, academics and policymakers in major financial centres.

This paper compares Chinese firms’ IPO performance both in the short- and the long-run on domestic and overseas markets and investigates what factors determine the IPO destinations of Chinese firms. We find China’s domestic IPO market performs well over both time horizons, while some listings in the overseas market perform well in the long run except for small- and mid-cap listings in the US. Analysis based on a capital asset pricing model reveals IPO premiums and short-term returns are less affected by three common risk factors, while longer term returns are mainly driven by market fundamentals. Investigation of the drivers for Chinese firms’ IPO destinations using the binary choice model shows that firm specifics, institutional setups, and market characteristics influence the choice of IPO destinations. The prospect of a high IPO premium and strong trading in IPO shares are substantial drivers for firms to list their shares onshore. On the other hand, indicators of market size and profitability appear to have the highest predictive power for the likelihood of overseas listings, followed by firm’s ownership structure, IPO offering size and IPO underwriting costs. Institutional setups have the least predictive power for overseas listings. These results are in general robust to domestic delisting and IPO suspension events.

The inelastic markets hypothesis states that the aggregate stock market price elasticity of demand is small, implying that flows have large impacts on prices. We exploit demand shocks created as investor funds are frozen and unfrozen during Chinese IPOs to estimate the impact of demand shocks on the Chinese stock market. Using brokerage account records, we observe the selling and buying as investors raise cash to subscribe for IPOs and then reinvest the funds that supported unsuccessful subscriptions. Using an instrumental variables estimator we find that a 10 bps demand shock increases stock prices by between 30 and 48 bps.