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Investment banks' entry into new IPO markets and IPO underpricing
journal contribution
posted on 2014-01-02, 00:00 authored by Simon FungSimon Fung, Ferdinand GulFerdinand Gul, S RadhakrishnanWe 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.
History
Journal
Management scienceVolume
60Issue
5Pagination
1297 - 1316Publisher
INFORMSLocation
Hanover, Md.Publisher DOI
ISSN
0025-1909eISSN
1526-5501Language
engPublication classification
C1.1 Refereed article in a scholarly journal; C Journal articleCopyright notice
2014, INFORMSUsage metrics
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