IPO Performance on China's Newest Stock Market (ChiNext)

We study IPO underpricing and long-run performance of ChiNext, a newly-established Growth Enterprise Board in China. Using a sample of 281 ChiNext IPOs during October 2009-December 2011, we find the initial average market adjusted abnormal return (MAAR) is 33.5 percent. The average 12-month buy-and-hold abnormal return (BHAR) is -45.7 percent for those IPOs listed prior to 2011. Although the average MAARs of ChiNext is significantly higher than IPOs listed on the Main Board, it is not significantly different from the Small and Medium Enterprise (SME) Board IPOs during the sample period. However, the ChiNext average BHARs are significantly lower than those on both the SME and Main Boards. Regression findings support the information asymmetry hypothesis (high uncertainty of ChiNext IPOs) and the behavioral theory (market sentiment) on underpricing for ChiNext IPOs, and we find that ChiNext IPO underperformances are consistent with the significant deterioration of their operating performance after listing and investors' speculative trading behavior on these new issues.