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Investment banks' entry into new IPO markets and IPO underpricing

Fung, Simon Yu Kit, Gul, Ferdinand A. and Radhakrishnan, Suresh 2014, Investment banks' entry into new IPO markets and IPO underpricing, Management science, vol. 60, no. 5, pp. 1297-1316, doi: 10.1287/mnsc.2013.1817.

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Title Investment banks' entry into new IPO markets and IPO underpricing
Author(s) Fung, Simon Yu Kit
Gul, Ferdinand A.
Radhakrishnan, Suresh
Journal name Management science
Volume number 60
Issue number 5
Start page 1297
End page 1316
Total pages 20
Publisher INFORMS
Place of publication Hanover, Md.
Publication date 2014-01-02
ISSN 0025-1909
1526-5501
Keyword(s) initial public offerings
underpricing
lowball
investment banks
agency problems
Hong Kong
Summary We examine the relationship between investment banks' initial public offering (IPO) market shares and their prior IPO underpricing in the new IPO market for China-based companies on the Hong Kong Stock Exchange. To gain expertise in Chinese business practices, investment banks have the incentive to obtain business in this new IPO market by providing high offer prices to the issuer, leading to less underpricing and less money on the table. We hypothesize and find that the less an investment bank underprices Chinabased company IPOs, the greater its subsequent market share of China-based company IPOs in the Hong Kong Stock Exchange. Furthermore, this relationship is driven by a bank's initial China-based company IPO deals. These results suggest that in new IPO markets, investment banks' initial market shares, obtained through lower underpricing, help them grow their market shares in later periods, possibly through the expertise gained in the initial business.
Language eng
DOI 10.1287/mnsc.2013.1817
Field of Research 150299 Banking, Finance and Investment not elsewhere classified
Socio Economic Objective 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2014, INFORMS
Persistent URL http://hdl.handle.net/10536/DRO/DU:30080006

Document type: Journal Article
Collection: Department of Accounting
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