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.

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.

This paper examines the value of political participation by private entrepreneurs in China. Using a unique sample of all initial public offerings by entrepreneurial firms during 1994-2007 and political participation by the controlling entrepreneurs, we test the hypothesis that firms with entrepreneurs who participate in politics are able to exploit rent-seeking opportunities that normal firms do not have access to. We document that the long-run stock performance after the IPO of firms controlled by entrepreneurs who participate in politics is superior to that of common entrepreneurial firms. Our results also show that political participation has a significant positive effect on change in operating performance and a negative effect on first-day returns. Moreover, we find that economic development and local institutions are important for this value effect. The difference in performance is even larger in regions characterized by more abundant rent-seeking opportunities, indicating that the value effect of political participation likely originates from rent seeking. This finding is consistent with the hypothesis that political participation facilitates entrepreneurs’ rent seeking.

The long-run underperformance of the initial public offerings is one of the three hot issues in IPO research area,until 2000,the scholars in China began to research it,hence,the related theory is far from absent,therefore,many theories need to be completed. The article studied the long-run performance of 174 shares issued in Small and Medium-sized Board from the day after the first trading day to three years.It found that the shares show underperformance since the first month after its going to public,which will continue to the second year.But the shares showed strong performance compared with the Shenzhen A-share Composite Index.

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.

We study whether firm name has an effect on firm valuation. Some Chinese firms listed on U.S. stock exchanges have the word "China" or "Chinese" included in their company names ("China-name stocks"), whereas others do not ("non-China-name stocks"). During the China stock market boom in 2007, we find that China-name stocks significantly outperform non-China-name stocks. This is not due to differences in firm characteristics, risk, or liquidity. We also find a significant increase in both abnormal returns and trading volumes of existing China-name stocks to the listing events of new Chinese initial public offerings. This "China-name effect" is largely consistent with the hypothesis that optimistic investor sentiment during the China stock market boom drives up China-name stocks more than non-China-name stocks.

This paper examines the role of earnings management in the underpricing and long-term performance of Chinese initial public offerings (IPOs) issued during the 1998-2003 period. It tests the earnings extrapolation hypothesis that naive investors extrapolate pre-issue earnings without fully adjusting for potential manipulation of accounting accruals, thereby inflating the initial trading price. If the hypothesis holds, underpricing will be positively related to initial earnings management. However, since the latter is subsequently corrected over time, it will lead to inferior long-term stock performance. The empirical evidence is consistent with both the earnings extrapolation and the long run underperformance hypotheses for our sample of 506 IPOs.