IPO Wave, Market Timing And Characteristics Of Listed Companies

As for IPO problems, researchers put their efforts mainly on three aspects: IPO underpricing, IPO underperformed and IPO hot issue market.Based on product market competition theory, this paper investigates the reason why IPO hot issue market appears and the qualities of companies going public during hot issue periods, which to some extent explains IPO underperformed problem. Our sample includes all the listed companies in Shanghai Stock Exchange and Shenzhen Stock Exchange which have IPO between 1990 and 2015. We use these data to analyze the impact of hot issue market index and the earliness index on the companies’ qualities variables, like TFP, ROA and Cash-to-Asset Ratio.According to the paper, TFP and ROA of companies going public in hot issue market is lower than that of companies going public in cold issue market. The cash-to-asset ratio of companies in hot issue market is higher than that of companies in cold issue market. Apart from that, if a company goes pubic earlier in an IPO wave, then it has lower TFP and ROA than later ones. It will also have higher cash-to-asset than laterones. The reason for that might be asymmetricinformation and investors’ over optimistic view about the market, which makes growth-type companies over-valued. So these over-valued companies get the chance of opportunity window, leading them to go public earlier than expected. When more and more companies go public because of over-valued, IPO underperform occurs. This paper also uses matching method to analyze the characteristic of firms going public in waves and finds the same result as before.Since 1989, China stock market has experienced many reforms. This year, we even can expect the transformationfrommeritregulationtoregistration-based initial public offering system. If this happens, there will be a great number of companies going public to meet their financial demand. So research on the IPO hot issue market is useful for the regulation department to supervise unhealthy IPO wave and also benefits investors when they make investment decisions.