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Pyramid IPOs on the Chinese Growth Enterprise Market

Journal article
Authors Martin Holmén
Peng Wang
Published in Emerging markets finance & trade
Volume 51
Issue 1
Pages 160-173
ISSN 1540-496X
Publication year 2015
Published at Centre for Finance
Department of Economics
Pages 160-173
Language en
Keywords growth enterprise market, initial public offering, oversubscription, pyramid ownership structure, underpricing
Subject categories Economics and Business


In this article, we investigate initial public offerings (IPOs) of high-tech firms on the Chinese Growth Enterprise Market (GEM). Almost half of the GEM IPOs are set up in pyramid structures. The likelihood of a pyramid structure increases with the size of the IPO firm and state control. Our results do not suggest that pyramids are set up to overcome financial constraints. However, we document that pyramid IPOs are discounted before the IPO. The subscription price-to-book ratio is significantly lower for pyramid IPOs, and this translates into higher underpricing. We conclude that IPO investors demand a higher risk premium when investing in pyramid IPOs.

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