Document Type

Journal Article


This paper investigates the impact of market conditions of market return and volatility on choosing an IPO mechanism, using data of 942 IPOs on either Shanghai or Shenzhen stock exchanges of China from 1994 to 2003. We find, on average, the issuers are more likely to have their IPOs offering and listing during times of high market return and low market volatility. The fixed price procedure of the secondary market proportional offering is optimal in minimising the underpricing and cross-sectional variation of the first day returns. The bookbuilding procedure is optimal in counteracting adverse conditions created by low market profitability, high market volatility and uncertainty induced by the time ‘gap’ from offering to listing. By comparing the advantages between the secondary market proportional offering and bookbuilding procedures, the latter is preferred.