Economic freedom and IPO underpricing

Yibiao Chen, Steven S. Wang, Hin Sang Tong, Hui Zhu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

4 Citations (Scopus)


This paper examines how the difference in institutional environments constitutes differential IPO underpricing across countries. Using the Heritage Foundation’s Index of Economic Freedom (IEF) as a proxy for the heterogeneous institutional environment, and a sample of 3728 IPOs from 22 countries and regions over the period 1993–2014, we find that countries with higher economic freedom have significantly less serious IPO underpricing problems. Moreover, we find that among the 10 economic freedom factors covered by theIEF, financial freedom related factors play a more important role in reducing the IPO underpricing problem. Finally, consistent with the market sentiment hypothesis, we find strong evidence that pre-IPO market sentiment influences IPO first-day returns, and that the IPO underpricing problem is less severe when the market is bearish.
Original languageEnglish
Article number20
JournalFrontiers of Business Research in China
Issue number1
Publication statusPublished - 1 Dec 2017


  • Economic freedom
  • Institutional environment
  • IPO underpricing

ASJC Scopus subject areas

  • General Business,Management and Accounting
  • Public Administration


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