We document the under-pricing of state asset sales in China. Because these stakes were in partially privatized firms, there is a credible benchmark - the price of publicly traded shares - to measure the extent of under-pricing. On average, we find that blocks of government shares sell at a discount of more than 70 percent relative to tradable shares. Further, sellers that conceal their state ownership status (likely in order to elude regulatory scrutiny) sell at a further 5 percentage point discount. The impact on subsequent performance is negative - both profitability and investment fall after transfers. We also document patterns in the data consistent with increased tunneling after asset sales.

We try to explain the severe under-pricing of 523 A-share IPOs in the Chinese markets from 1997 to 2001 using institutional characteristics, absolute value, and relative value of IPO. We find that relative values of IPO are critical determinants of the severe under-pricing of A-share IPOs in China. We also find that relaxing government regulation of offering price increases under-pricing, and thus conclude that the severe under-pricing of A-share IPOs in China is not caused by the government regulation of offering price. We propose a relative value theory to explain why relaxing government regulation of offering price results in higher under-pricing and find some support for the theory.

We try to explain the severe under-pricing of 523 A-share IPOs in the Chinese markets from 1997 to 2001 using institutional characteristics, absolute value, and relative value of IPO. We find that relative values of IPO are critical determinants of the severe under-pricing of A-share IPOs in China. We also find that relaxing government regulation of offering price increases under-pricing, and thus conclude that the severe under-pricing of A-share IPOs in China is not caused by the government regulation of offering price. We propose a relative value theory to explain why relaxing government regulation of offering price results in higher under-pricing and find some support for the theory.