Do anti-takeover provisions restrain IPO underpricing? An analysis from the perspective of information asymmetry

Kejing Chen · Xiaolin Li · Qingqing Wan · Jing Ye · Mo Yang

10 citations0/0 files storedChina Accounting and Finance Review

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Corporate Finance and Governance Financial Markets and Investment Strategies Auditing, Earnings Management, Governance

Abstract

Purpose Based on the textual-analyzed data covering 2148 IPO firms in China’s stock market during the 2007–2018 period, the authors’ purpose is to examine the influence of anti-takeover provision (ATP) adoption on initial public offerings (IPO) underpricing and identify the reducing effect of the former. Design/methodology/approach The authors examine the sample consisting of Chinese A-share listed IPO firms between 2007 and 2018 from China Stock Market Accounting Research and Chinese Research Data Services, with ATP data collected from the IPO firm chapters. Specifically, the authors use text analysis to identify whether there are ATPs in the IPO firm chapters, as well as the number of ATPs. H1: IPO underpricing is less severe for firms adopting ATPs. H2: The effect of ATP adoption on IPO underpricing is more salient for firms in worse information environments. Findings The authors examine the influence of ATP adoption on IPO underpricing and identify the reducing effect of the former. This effect can be explained by the fact that adopting ATPs in IPO firm chapters can reduce information asymmetry to a large extent by helping external investors obtain more private information, which alleviates IPO underpricing. The authors also find that the reducing effect is more significant in the worsened information environment. Furthermore, the authors explore the influence of adopting ATPs on other IPO characteristics and find positive effects on IPO over-subscription, funds raised and trading activity and negative effects on listing fees. Originality/value This study mainly contributes to the literature from the following two aspects. First, the study enriches the literature about the influencing factors of IPO underpricing. Second, the study also enriches the literature about the economic consequences of ATP adoption. This study also has important policy implications. With the coming of the era of decentralized ownership in China’s capital market, ATP adoption has become more important and attracted more attention. Also, investors focus more on pricing efficiency. The findings in this paper provide a more comprehensive understanding of the relationship between ATP adoption and IPO underpricing.

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References

2001Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature 2003Corporate Governance and Equity Prices 1986Why new issues are underpriced 1986Investment banking, reputation, and the underpricing of initial public offerings 1991Venture Capitalist Certification in Initial Public Offerings 2002A Review of IPO Activity, Pricing, and Allocations 1989Management entrenchment 2000Earnings Management: Reconciling the Views of Accounting Academics, Practitioners, and Regulators

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