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date: 28 January 2020

Abstract and Keywords

While the costs borne by firms in raising external capital through initial public offerings (IPOs) and seasoned equity offerings are well documented, the strategic role of IPO underpricing in the market for raising equity after the IPO remains largely unstudied, particularly in an international setting. In China publicly traded firms often issue post-IPO equity through private placements of equity (PEPs), rather than public offerings. This chapter examines the relationship between the pricing behavior of IPOs and the issuance choice of future PEPs. Do companies use IPO underpricing as a strategic precursor toward raising additional capital in future PEPs? If the success of initial offerings of equity can help improve the capital-raising capacity and reduce the issuance cost in subsequent offerings, high-quality firms will intentionally pursue a multiple-issue strategy by lowering the IPO offer price in order to raise more capital at a higher price in PEPs.

Keywords: initial public offering, IPO, China, equity, private placement of equity, underpricing, PEP

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