Empirical Study on IPO′s Price Information Content and First-Day Returns in China

The positive first day return of IPOs is a widespread phenomenon in the world,but in China the return is abnormally higher than other countries,which impedes the capital market to price and allocates IPOs effectively,however,it is the key driver for regulators to promote market-oriented pricing reform of IPOs in China.Using the sample of 483 IPOs between 2001 and 2008,this study took the price information reflected in the IPO prices into consideration by constructing variables to valuate the price information content of IPOs from the information efficiency perspective.We use univariate analysis and multivariate regression methods in the empirical study and find that bookbuilding in pricing IPOs does not fulfill the policy objectives of reducing the degree of underpricing in IPOs,however,by measuring the price information content of IPOs,the results indicate that the participation of institutional investors in pricing the IPOs enhance the capitalization degree of firm-specific information into IPO prices.The market-oriented pricing mechanisms of bookbuilding also increase price discovery efficiency based on the IPO′s firm-specific characteristics and information.The result not only is advisable for IPO investors to make decisions and has guiding significance for regulators to improve the existing bookbuilding pricing mechanism,but also provides an alternative explanation on discussion of the underpricing and pricing efficiency in Chinese IPOs from the price information content perspective.