Strategic share allocation and underpricings of IPOs in Hong Kong

Louis T.W. Cheng*, Kam C. Chan, Billy S C MAK

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    26 Citations (Scopus)


    In this paper, we introduce two measures of allotment ratios for small investors to examine the strategic share allocation strategy of IPO underwriters in Hong Kong. Employing a sample of 267 IPOs from 1993 to 1997 and statistical analyses including two-sample comparisons and regression models, we find evidence that underwriters use non-discretionary allocation of IPOs to favor small investors in Hong Kong. The results support our argument that in an IPO market where investment bankers do not have a trusting relationship with large investors and an effective mechanism to monitor block traders' selling, IPO underwriters explicitly allocate relatively more shares of better (more-underpriced) IPOs to a larger number of small (loyal) investors. The result may be driven by the regulatory concern on protecting the interest of small investors in Hong Kong. Hence, our evidence suggests that the IPO share allocation strategy is very different between Hong Kong and US.

    Original languageEnglish
    Pages (from-to)41-59
    Number of pages19
    JournalInternational Business Review
    Issue number1
    Publication statusPublished - Feb 2005

    Scopus Subject Areas

    • Business and International Management
    • Finance
    • Marketing

    User-Defined Keywords

    • IPO
    • Strategic allocation
    • Underpricings


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