Urban Economic Openness and IPO Underpricing of Chinese Real Estate Companies
||Zheng, Chen; Gianluca Marcato, Stanimira Milcheva
||Urban Economic Openness and IPO Underpricing of Chinese Real Estate Companies
||21st Annual European Real Estate Society Conference in Bucharest, Romania
||This paper examines the empirical impact of trade openness on the short-run underpricing of real estate IPOs in China, on a city level. To our knowledge, this represents the first paper which employs a macroeconomic argument to explain the real estate IPO performance. Our work is based on the Balassa-Samuelson (1964) effect, which suggests a significant impact of trade openness on both direct and indirect real estate markets. Moreover, trade openness was found to increase the firms’ future profitability providing more business opportunities._Since Chinese real estate companies have strong geographic patterns with business focus in a local district – usually at city level – and the extent of openness is significantly heterogeneous, this specific market represents a useful laboratory to examine the macroeconomic effect of trade openness on the real estate IPO underpricing in urban level. The model is estimated using a dataset of primary information on real estate IPOs in China from 1992 until the end of 2013. By using the de facto measure of the trade openness and controlling for other economic and firm-specific variables, we find evidence that the trade openness of a city has a significantly negative impact on the IPO initial return. We explain this result arguing that trade openness increases the issuer and its underwriters’ confidence in the firm’s future performance and hence issuers and underwriters do not need to underprice the shares to guarantee the success of an IPO._
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||E : International Real Estate
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