Accounting conservatism and IPO underpricing: China evidence

This study examines how accounting conservatism impacts underpricing of initial public offerings (IPOs) in the Chinese stock market. In addition, we investigate how information asymmetry affects the association of accounting conservatism with IPO underpricing. Based on regression analysis of 674 A-shares companies that went public through IPOs at both Shanghai and Shenzhen Stock Exchanges in China during 2001–2009, we find that (1) accounting conservatism is negatively associated with the magnitude of IPO underpricing; and (2) the relationship between accounting conservatism and IPO underpricing is more pronounced when information asymmetry is high. The findings should shed a light on what drives IPO underpricing and how it could be affected by accounting conservatism in an emerging economy.