Determinants of the initial IPO performance: evidence from Hong Kong and Taiwan

The study examines the pricing determinants of initial public offerings (IPOs) in the Hong Kong and Taiwanese markets. Consistent with the literature, we find that the IPOs are underpriced in these two markets. Among the pricing determinants we examine, share allotment over the number of participating applicants appears to be the most important common factor. However, different IPO market characteristics do exist between the markets. We document that investment firms are underpriced while the trading and service firms are overpriced during the IPO events in Hong Kong. In contrast, liquidity appears to be positively related to the initial underpricing of IPO firms in Taiwan. Our evidence therefore supports the winner's curse model proposed by Rock (1986), and to some extent the liquidity theory by Booth and Chua (1996). The applicability and implications of our findings should also be of value to firms seeking external equities in these markets.