SEO underpricing in China's stock market: A stochastic frontier approach

초록

This article studies a sample of 225 Chinese A-share Seasoned Equity Offerings (SEOs) from 1999 to 2007. We compare a novel underpricing measure with a Stochastic Frontier Approach (SFA) as in Koop and Li (2001) to the conventional measure based on the difference between primary market price and secondary market price. We find that SEO underpricing exists in China's stock market, but there is a vast discrepancy between the magnitudes under the two different measures. Also, our empirical results show that the main determinants of the underpricing are associated with high asymmetric information among underwriters, issuers and investors, which is unsurprisingly pronounced in emerging markets such as that of China. © 2013 Copyright Taylor and Francis Group, LLC.

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