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.

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.

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.

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.

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.

More than one in five listed firms in China initiate dividend payments during the year right before their initial public offerings (IPOs). This tendency, which seems to contradict the purpose of raising capital, constitutes the pre-IPO dividend puzzle. This paper examines this puzzle using manually collected Chinese data from 2006 to 2019. We find that firms initiating pre-IPO dividends tend to have lower IPO underpricing than non-initiating firms. We also find that the effect of pre-IPO dividend initiation on IPO underpricing is more pronounced for firms with stronger pre-IPO growth and profitability. Additional analyses indicate that initiating firms have better pre- and post-IPO operating performance and post-IPO stock performance. Moreover, initiating firms pay more dividends and have significantly higher investor attention after the IPOs. Collectively, the pre-IPO dividend initiation is not a short-term strategic behavior of low-quality firms but is intended to send positive signals and improve investors’ stock valuation.

We study how institutional investors utilize potentially biased information by analyzing the e ect of IPO underwriters' earnings forecasts on investors' bidding behaviors in Chinese IPO auctions. Despite the presence of upward biases in underwriters' earnings forecasts, we  nd that investors' bid prices are higher in IPOs with higher earnings forecasts. The investors' positive reaction to biased information can be explained in a rational expectation model where the underwriter has valuable information about the IPO but has a biased incentive in presenting the information to investors. Consistent with the model's predictions, we  nd that an investor's bid price is more sensitive to the underwriter's earnings forecast when the forecast bias is expected to be smaller, when the relative precision of the underwriter's information over the investor's information is higher, and when the investor has a higher valuation of the IPO.

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.

In China the number 8 is considered 'lucky' and the number 4 'unlucky'. This paper shows that almost twenty percent of the IPO prices for the Chinese domestic market (A-shares) end in the 'lucky' number 8 as compared to a little more than three percent ending in the 'unlucky’ number 4 (a ratio of almost six to one). It also documents that 'lucky' number combinations make up the ending two digits of more than ten percent of A-share price endings. This occurrence is far greater than expected by chance or by other theories that have explained price clustering in financial markets. We conclude that issuers of Chinese IPOs consciously choose to favour 'lucky' numbers when setting prices.

The purpose of this paper is to investigate the certification and monitoring roles played by underwriters in IPO earnings management. Prior studies show that IPO issuers have incentives to employ opportunistic earnings management to enhance initial firm values. However, the certification role of underwriters has been largely overlooked. We argue that there is a negative relation between underwriter reputation and IPO earnings management. Moreover, we think that underwriters have strong incentives to continue providing monitoring to the firms they take public due to the lucrative business relationships. We thus hypothesize that there is a positive relation between underwriter reputation and post-IPO firm operating performance. Using a sample of 367 IPOs, we obtain results consistent with our hypotheses. We find that IPOs underwritten by lower-reputation underwriters have more initial discretionary accruals and higher initial firm values, indicating there is a significantly negative relation between IPO earnings management and underwriter reputation. We also find that the post-IPO operating performance of IPOs is significantly and positively related to underwriter reputation. For the robustness test, we consider the possibility that IPO earnings management and the choice of underwriters are endogenously determined. An instrumental variable two-stage least squares regression and a weighted least squares regression confirm the robustness of our results.