Government control and the higher costs of going public: Evidence from a new stock market in China

IPO underpricing or the indirect cost of going public is extremely high in China. We hypothesize that government control over the corporate economy underlies this puzzle. Specifically, bureaucratic managers in state-owned firms as well as regulatory authorities have incentives to underprice. Using a sample of a new stock market in China, we find evidence supporting this hypothesis. Underpricing is higher for state-owned firms and for IPOs before...