This paper investigates the informational role of strategic investors on companies listing in Hong Kong. The research is inspired by the increasing number of strategic investors in the new issues. Two specific objectives are addressed: (1) to determine the effect of strategic investors on initial public offering (IPO) underpricing and (2) to look at the market reaction to share sales by strategic investors for the first time after lock-up expiries. We perform analysis on data of IPOs in Hong Kong from 2002 to 2007. Ordinary least squares regressions validate that the presence of strategic investors helps explain IPO underpricing, although the strategic investor variables are not directly associated with the initial returns. Results of this research also suggest that the capital market i...[ Read more ]

This paper investigates the informational role of strategic investors on companies listing in Hong Kong. The research is inspired by the increasing number of strategic investors in the new issues. Two specific objectives are addressed: (1) to determine the effect of strategic investors on initial public offering (IPO) underpricing and (2) to look at the market reaction to share sales by strategic investors for the first time after lock-up expiries. We perform analysis on data of IPOs in Hong Kong from 2002 to 2007. Ordinary least squares regressions validate that the presence of strategic investors helps explain IPO underpricing, although the strategic investor variables are not directly associated with the initial returns. Results of this research also suggest that the capital market in Hong Kong is semi-strong efficient, as the market reaction to share sales by strategic investors is not significant. This paper confirms that strategic investor participation is an important item of information on the share prices of listed companies.

Keywords: Strategic investors; Initial public offerings; Underpricing