Do Chinese banks perform better after IPOs?

Abstract

Purpose

As part of the banking reform, major commercial banks in China went through initial public offerings (IPOs) in the past two decades. Has this change in the ownership structure led to improvement in their performance? With a comprehensive data set of Chinese banks over 1999-2010, the purpose of this paper is to investigate the effects of IPOs on bank performance in China.

Design/methodology/approach

The authors employ a stochastic frontier approach (SFA) to measure bank efficiency and assess the selection and dynamic effects of public listing.

Findings

The authors find strong selection effects. That is, banks that choose to go public are significantly more efficient than those that do not. However, the analysis of the dynamic effects shows no evidence that bank efficiency improves after going public, either in the short run or in the long run. The authors further look into bank performance around IPO events with non-parametric analysis and find that banks significantly outperform their counterparts prior to IPOs, but this superior performance disappears immediately after IPOs. This evidence is consistent with the “window dressing” hypothesis that firms time new issues to take advantage of windows of opportunity.

Originality/value

This is the first study that addresses the performance of IPO banks measured with SFA in China after 2005 when the major Chinese banks were listed.

Citation

Yin, H., Yang, J. and Mehran, J. (2015), "Do Chinese banks perform better after IPOs?", Managerial Finance, Vol. 41 No. 4, pp. 368-384. https://doi.org/10.1108/MF-06-2014-0150