Long-Run Outperformance of Chinese Initial Public Offerings

The long-run performance of Chinese IPOs is investigated using 897 A-share IPOs listed on the two Chinese stock exchanges from 1996 to 2002. Significantly positive abnormal returns are found up to three years after listing by using the cumulative abnormal return measure, the buy-and-hold abnormal return measure, and the Fama-French three-factor model. Since the series of reforms in 1999-2000, outperformance has shown clear signs of decreasing. Cross-sectional analysis supports the view that the reasons for the outperformance of IPOs are the privatized nature of the new issues and the inequality of supply and demand. However, the uncertainty of the reforms reducing state ownership has made investing in IPOs less attractive in the long run.