IPO Location as a Quality Signal: The Case of Chinese Developers

IPO Location as a Quality Signal: The Case of Chinese Developers A growing number of Mainland Chinese real estate firms went public over the past decade. Some floated their shares in Hong Kong, while others were listed on Mainland China stock exchanges. This paper empirically examines the determinants of their initial public offering (IPO) location choice. Based on probit analysis, we found that developers with better unobserved quality are more likely to list in Hong Kong than in the Mainland. State ownership, gearing ratio, and property market performance are other significant determinants of IPO locations. A further test shows that the degree of IPO underpricing is larger for firms listed in Mainland China than those listed in Hong Kong. All these findings are consistent with the signaling hypothesis—good firms signal their quality to investors by listing in market with more stringent regulatory environment where other firms cannot afford to imitate. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

IPO Location as a Quality Signal: The Case of Chinese Developers

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Publisher
Springer US
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Economics / Management Science; Regional/Spatial Science; Finance/Investment/Banking
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-013-9441-0
Publisher site
See Article on Publisher Site

Abstract

A growing number of Mainland Chinese real estate firms went public over the past decade. Some floated their shares in Hong Kong, while others were listed on Mainland China stock exchanges. This paper empirically examines the determinants of their initial public offering (IPO) location choice. Based on probit analysis, we found that developers with better unobserved quality are more likely to list in Hong Kong than in the Mainland. State ownership, gearing ratio, and property market performance are other significant determinants of IPO locations. A further test shows that the degree of IPO underpricing is larger for firms listed in Mainland China than those listed in Hong Kong. All these findings are consistent with the signaling hypothesis—good firms signal their quality to investors by listing in market with more stringent regulatory environment where other firms cannot afford to imitate.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Aug 27, 2013

References

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