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| Research on the lmpact of Equity Carve-Outs on IPO Pricing Efficiency |
| YAN Endian，LU Hong |
| Shanghai University, Shanghai, China |
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Abstract Using a sample of Shanghai and Shenzhen A-shares’ ECOs during the period of 2008～2022, this study empirically tests the impacts of an ECO on IPO pricing efficiency. The results show that an ECO significantly reduces pricing efficiency, as reflected in the higher IPO underpricing rate. This is mainly due to the low pricing of the issuance in the primary market. Mechanism tests indicate that the higher underpricing in an ECO is attributed to the management practices such as benefit transfer and performance window dressing. In this case, management is more inclined to set a relatively low issue price to avoid the catastrophic consequences of a failed issuance and a broken IPO, thus ensuring that private interests are “realized”. Heterogeneity analysis demonstrates that the negative impact of an ECO on IPO pricing efficiency is more pronounced when company transparency is low and external supervision is insufficient.
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Received: 01 February 2024
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