BIS国际清算银行-Competitive-effects-of-IPOs_-evidence-from-Chinese-listing-suspensions_37页_743kb

Summary of "Competitive Effects of IPOs: Evidence from Chinese Listing Suspensions"

Core Content

This working paper by Frank Packer and Mark M. Spiegel examines the competitive effects of initial public offerings (IPOs) on listed firms in China, using the unique context of blanket IPO suspensions implemented by the China Securities Regulatory Commission (CSRC). The study focuses on three major suspension episodes: 2008–09, 2012–14, and 2015, analyzing the impact of these suspensions on the equity valuations of existing listed firms.

Main Viewpoints

• IPOs have competitive effects on existing listed firms, both directly and indirectly.
• Direct competition arises from the entry of new firms into the market, which may threaten the profits of existing competitors.
• Asset-space competition occurs when the supply of similar assets (from IPOs) reduces demand for existing listed firms' shares.
• The effect of IPOs varies by firm characteristics, with healthier and more profitable firms being less sensitive to these competitive impacts.
• IPO suspensions provide a natural experiment to isolate the competitive effects of IPOs from other endogenous factors, as they are unanticipated and exogenous shocks to the market.

Key Information

1. IPO Suspensions in China

• The CSRC has imposed nine blanket IPO suspensions since 1994 and five since 2005.
• These suspensions are typically triggered by macroeconomic or market instability.
• The duration of suspensions varies, with the 2008–09 suspension lasting 214 days, 2012–14 lasting 438 days, and 2015 lasting 156 days.
• The total value of postponed IPOs varies significantly across suspensions, with 2008 being the largest at 91 billion RMB, followed by 2015 at 35 billion RMB, and 2012 at 29 billion RMB.
• The average size of postponed IPOs is around 1 billion RMB, with 2008 firms having a higher industry market cap share (1.3%) compared to other years.

2. Competitive Effects

• The direct competitive effect is measured by the value share of postponed firms in the IPO queue within each industry, denoted as IPO$_{i,t}$.
• The asset-space competitive effect is measured using historical covariance between firms' returns and a synthetic portfolio of listed firms with the same industry mix as the suspended IPO queue, denoted as COV$_{f,t}$.
• Results show that IPO suspensions lead to positive equity valuation impacts, supporting the predicted competitive effects through both channels.
• More profitable and productive firms are less affected by the competitive impact of IPOs, suggesting that firm health moderates the effects.

3. Methodology

• The study uses a panel dataset of listed firms on the Shenzhen and Shanghai stock exchanges during the periods of IPO suspensions.
• The dependent variable is the one-day return on equity values following the suspension announcement.
• The independent variables include:
  • IPO$_{i,t}$: the ratio of the total value of postponed IPOs to the total market capitalization of firms in the industry.
  • DIPO$_{i,t}$: the weighted average delay of IPOs in the queue, calculated based on the public offering amount and days delayed.
  • COV$_{f,t}$: the covariance of each firm’s returns with a synthetic portfolio of firms in the same industry as the suspended IPO queue.
• The study also includes firm fixed effects and conditioning variables such as market capitalization, leverage, price-to-book ratio, earnings volatility, and state ownership.

4. Heterogeneity in IPO Effects

• Firm profitability is a key determinant of the impact of IPOs.
• Firms with higher profitability (measured through various proxies such as net profit margin, return on assets, return on equity, return on invested capital, and operating profitability) are less sensitive to the competitive effects of IPOs.
• State-owned enterprises (SOEs) may be more vulnerable to the competitive effects of IPOs due to reduced access to preferential credit and higher exposure to market fluctuations.

5. Robustness and Policy Implications

• The results are robust to a variety of sensitivity tests.
• The direct competition channel is stronger and more statistically significant than the asset-space channel.
• The findings complement previous research, such as that by Hsu et al. (2010), which found that more leveraged and less R&D-intensive firms are more sensitive to IPO competition.
• The paper highlights the importance of understanding how IPO activity affects existing firms and suggests that regulatory interventions like IPO suspensions can be used to assess and mitigate competitive effects.

Conclusion

The paper provides empirical evidence that IPOs have competitive effects on existing listed firms, both through direct market competition and indirect asset supply effects. It also shows that firm characteristics, particularly profitability and health, play a crucial role in determining the sensitivity to these effects. The use of IPO suspensions as a natural experiment allows for a more precise estimation of the competitive impact of IPOs, offering policy insights into the market dynamics of IPO activity in China.