Underpricing and Operating Performance of Chinese B-Share Initial Public Offerings

Previous research shows that Chinese A-share initial public offerings (IPOs) experience very high initial returns. This study focuses on Chinese B-share IPOs and investigates their initial returns, operating performance change before and after listing, and long-run market performance. We study all B-share IPOs listed from 1992 to 2000 in China and find that the average underpricing of Chinese B-share IPOs is 28.63 percent, which is statistically and economic significant. The initial returns of B-share IPOs on the Shenzhen Stock Exchange are significantly higher than those on the Shanghai Stock Exchange; the smaller size IPOs are significantly higher than those of larger issuance; and the periods with fewer IPOs are higher than those when more IPOs are listed. Results show that the operating performance of B-share companies deteriorates after listing, indicating that earnings management is popular among those firms. We also find that the abnormal long-run returns of B shares are marginally negatively significant and go down year by year, which is consistent with the change of operating performance of B-share companies.