Pyramid IPOs on the Chinese Growth Enterprise Market
Pyramid IPOs on the Chinese Growth Enterprise Market
In this article, we investigate initial public offerings (IPOs) of high-tech firms on the Chinese Growth Enterprise Market (GEM). Almost half of the GEM IPOs are set up in pyramid structures. The likelihood of a pyramid structure increases with the size of the IPO firm and state control. Our results do not suggest that pyramids are set up to overcome financial constraints. However, we document that pyramid IPOs are discounted before the IPO. The subscription price-to-book ratio is significantly lower for pyramid IPOs, and this translates into higher underpricing. We conclude that IPO investors demand a higher risk premium when investing in pyramid IPOs.
growth enterprise market, initial public offering, oversubscription, pyramid ownership structure, underpricing
160-173
Holmen, Martin
6abe51bc-7f21-4e5e-b4ac-185a424ef041
Wang, Peng
9496fb0a-1c17-4b6b-a755-aedf19bb83e5
2 April 2015
Holmen, Martin
6abe51bc-7f21-4e5e-b4ac-185a424ef041
Wang, Peng
9496fb0a-1c17-4b6b-a755-aedf19bb83e5
Holmen, Martin and Wang, Peng
(2015)
Pyramid IPOs on the Chinese Growth Enterprise Market.
[in special issue: Symposium: Productivity, Trade, and Development in Latin America]
Emerging Markets Finance and Trade, 51 (1), .
(doi:10.1080/1540496X.2015.1011526).
Abstract
In this article, we investigate initial public offerings (IPOs) of high-tech firms on the Chinese Growth Enterprise Market (GEM). Almost half of the GEM IPOs are set up in pyramid structures. The likelihood of a pyramid structure increases with the size of the IPO firm and state control. Our results do not suggest that pyramids are set up to overcome financial constraints. However, we document that pyramid IPOs are discounted before the IPO. The subscription price-to-book ratio is significantly lower for pyramid IPOs, and this translates into higher underpricing. We conclude that IPO investors demand a higher risk premium when investing in pyramid IPOs.
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Published date: 2 April 2015
Keywords:
growth enterprise market, initial public offering, oversubscription, pyramid ownership structure, underpricing
Organisations:
Centre of Excellence for International Banking, Finance & Accounting
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Local EPrints ID: 380283
URI: http://eprints.soton.ac.uk/id/eprint/380283
ISSN: 1540-496X
PURE UUID: 150ea989-4104-4882-92f4-2b407ce2f6d2
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Date deposited: 08 Sep 2015 12:46
Last modified: 15 Mar 2024 03:51
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Author:
Martin Holmen
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