Cultural values, economic growth, and international IPO underpricing: evidence from Chinese companies
Abstract
Listing markets have different cultural backgrounds and experience different economic development. This study examines the impact of cultural values and the moderating effect of economic growth on IPO underpricing issued by Chinese companies in different stock markets. Using a sample of 2429 IPOs issuing in four different stock markets for the 2000–2018 period, the results suggest that in markets with higher power distance or longer-term orientation, IPOs experience higher underpricing; in markets with higher uncertainty avoidance scores, masculinity, individualism, or indulgence, IPOs experience lower underpricing. The greater the multidimensional cultural distance is to the Chinese A-share market, the less underpricing IPOs experience. Economic growth has a significant moderating effect, thereby intensifying or restraining the relationship between culture and IPO underpricing. The additional analysis considering cross-listing companies, and the robustness tests considering alternative measures of culture further support the above conclusions. This study highlights the cultural and economic factors motivating IPO underpricing, can help managers select listing markets from cultural and economic perspective.
Keyword : IPO underpricing, cultural values, economic growth, investor behaviour, listing markets, Chinese companies
How to Cite
Geng, P., & Tan, Q. (2021). Cultural values, economic growth, and international IPO underpricing: evidence from Chinese companies. Journal of Business Economics and Management, 22(2), 537-556. https://doi.org/10.3846/jbem.2021.13914
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Schwartz, S. H. (2006). A theory of cultural value orientations: Explication. Comparative Sociology, 5(2), 137–182. https://doi.org/10.1163/156913306778667357
Sherman, A. E. (2005). Global trends in IPO methods: Book building versus auctions with endogenous entry. Journal of Financial Economics, 78(3), 615–649. https://doi.org/10.1016/j.jfineco.2004.09.005
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Zhou, M. S., Zhou, K. H., & Liu, Y. Z. (2011). Study on the disposition effect of fund investors in China. Review of Investment Studies, 10, 89–99.
Barber, B. M., & Odean, T. (2008). All that glitters: The effect of attention and news on the buying behavior of individual and institutional investors. Review of Financial Studies, 21(2), 785–818. https://doi.org/10.1093/rfs/hhm079
Cai, K., & Zhu, H. (2015). Cultural distance and foreign IPO underpricing variations. Journal of Multinational Finance Management, 29, 99–114. https://doi.org/10.1016/j.mulfin.2014.11.003
Chahine, S., Colak, G., Hasan, I., & Mazboudi, M. (2020). Investor relations and IPO performance. Review of Accounting Studies, 25, 474–512. https://doi.org/10.1007/s11142-019-09526-8
Chang R. P., Rhee, S. G., Stone, G. R., & Tang, N. (2008). How does the call market method affect price efficiency? Evidence from the Singapore stock market. Journal of Banking & Finance, 32(10), 2205–2219. https://doi.org/10.1016/j.jbankfin.2007.12.036
Che, L. (2018). Investor types and stock return volatility. Journal of Empirical Finance, 47, 139–161. https://doi.org/10.1016/j.jempfin.2018.03.005
Chourou, L., Saadi, S., & Zhu, H. (2018). How does national culture influence IPO underpricing? Pacific-Basin Finance Journal, 51, 318–341. https://doi.org/10.1016/j.pacfin.2018.08.015
Cornelli, F., Goldreich, D., & Ljungqvist, A. (2006). Investor sentiment and pre-IPO markets. Journal of Finance, 61(3), 1187–1216. https://doi.org/10.1111/j.1540-6261.2006.00870.x
Costa, B. A., Crawford, A., & Jakob, K. (2013). Does culture influence IPO underpricing? Journal of Multinational Finance Management, 23(1–2), 113–123. https://doi.org/10.1016/j.mulfin.2012.12.001
Derrien, F. (2005). IPO pricing in “hot” market conditions: Who leaves money on the table? Journal of Finance, 60(1), 487–521. https://doi.org/10.1111/j.1540-6261.2005.00736.x
Fidrmuc, J. P., & Jacob, M. (2010). Culture, agency costs, and dividends. Journal of Comparative Economics, 38(3), 321–339. https://doi.org/10.1016/j.jce.2010.04.002
Greenwood, J., & Jovanovic, B. (1990). Financial development, growth, and the distribution of income. Journal of Political Economy, 98(5), 1076–1107. https://doi.org/10.1086/261720
Grinblatt, M., & Hwang, C. Y. (1989). Signalling and the pricing of new issues. Journal of Finance, 44(2), 393–420. https://doi.org/10.1111/j.1540-6261.1989.tb05063.x
Gupta, D. R., Veliyath, R., & George, R. (2018). Influence of national culture on IPO activity. Journal of Business Research, 90, 226–246. https://doi.org/10.1016/j.jbusres.2018.04.023
Hofstede, G. (2001). Culture’s consequences: Comparing values, behaviors, institutions, and organizations across nations. Administrative Science Quarterly, 27(3), 127–131.
Hofstede, G., & Bond, M. H. (1984). Hofstede’s culture dimensions. Journal of Cross-Cultural Psychology, 15(4), 417–433. https://doi.org/10.1177/0022002184015004003
House, R. J., Hanges, P. J., Javidan, M., Dorfman, P. W., & Gupta, V. (2004). Culture, leadership, and organizations: The GLOBE study of 62 societies. Sage Publications.
Huang, Y. S., Li, M., & Chen, C. R. (2019). Financial market development, market transparency, and IPO performance. Pacific-Basin Finance Journal, 55, 63–81. https://doi.org/10.1016/j.pacfin.2019.03.007
Kogut, B., & Singh, H. (1988). The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19(3), 411–432. https://doi.org/10.1057/palgrave.jibs.8490394
La Porta, R., Lopez-de-Silanes F., Shleifer, A., & Vishny, R. (2000). Agency problems and dividend policies around the world. Journal of Finance, 55(1), 1–33. https://doi.org/10.1111/0022-1082.00199
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1997). Legal determinants of external finance. Journal of Finance, 52(3), 1131–1150. https://doi.org/10.1111/j.1540-6261.1997.tb02727.x
Lakonishok, J., & Smidt, S. (1986). Volume for winners and losers: Taxation and other motives for stock trading. Journal of Finance, 41(4), 951–974. https://doi.org/10.1111/j.1540-6261.1986.tb04559.x
Lan, J. M., Hao, X. G., & Lu, S. (2019). A study of the difference of irrational behavior between institutional investors and individual investors. Research on Economies and Management, 40(6), 16–33.
Lenz, H., & Ostrowski, M. (2005). Auditor choice by IPO firms in Germany: Information or insurance signalling? International Journal of Accounting, Auditing, and Performance Evaluation, 2(3), 300–320. https://doi.org/10.1504/IJAAPE.2005.007677
Lim, K. P., Brooks, R. D. (2010). Why do emerging stock markets experience more persistent price deviations from a random walk over time? A country-level analysis. Macroeconomic Dynamics, 14(S1), 3–41. https://doi.org/10.1017/S1365100509090397
Massa, M., & Zhang, L. (2020). Local investor horizon clientele and IPO underpricing. Journal of Financial Markets, 100587 (in Press). https://doi.org/10.1016/j.finmar.2020.100587
McGurk, Z., Nowak, A., & Hall, J. C. (2020). Stock returns and investor sentiment: Textual analysis and social media. Journal of Economics and Finance, 44, 458–485. https://doi.org/10.1007/s12197-019-09494-4
Meluzín, T., Zinecker, M., Balcerzak, A. P., Doubravsky, K., Pietrzak, M. B., & Dohnal, M. (2018). The timing of initial public offerings – non-numerical model based on qualitative trends. Journal of Business Economics & Management, 19(1), 63–79. https://doi.org/10.3846/jbem.2018.1539
Nielsson, U., & Wójcik, D. (2016). Proximity and IPO underpricing. Journal of Corporate Finance, 38, 92–105. https://doi.org/10.1016/j.jcorpfin.2016.03.012
Rija, M. (2019). An empirical analysis of underpricing and oversubscription between venture-backed IPO and non-venture-backed IPO in Italy. International Business Research, 12(4), 143–152. https://doi.org/10.5539/ibr.v12n4p143
Ritter, J. R. (1984). The “hot issue” market of 1980. Journal of Business, 57(2), 215–240. https://doi.org/10.1086/296260
Schwartz, S. H. (2006). A theory of cultural value orientations: Explication. Comparative Sociology, 5(2), 137–182. https://doi.org/10.1163/156913306778667357
Sherman, A. E. (2005). Global trends in IPO methods: Book building versus auctions with endogenous entry. Journal of Financial Economics, 78(3), 615–649. https://doi.org/10.1016/j.jfineco.2004.09.005
Zhang, R., Xian, X., & Fang, H. (2019). The early-warning system of stock market crises with investor sentiment: Evidence from China. International Journal of Finance & Economics, 24(1), 361–369. https://doi.org/10.1002/ijfe.1667
Zhou, K., Zhou, B., & Liu, H. (2020). IPO underpricing and information quality of prospectuses. Singapore Economic Review, 65(6), 1559–1577. https://doi.org/10.1142/S0217590820500289
Zhou, M. S., Zhou, K. H., & Liu, Y. Z. (2011). Study on the disposition effect of fund investors in China. Review of Investment Studies, 10, 89–99.