Cornerstone Investors in Hong Kong Initial Public Offerings Market

  • Ruisheng Zhao

Student thesis: Master of Philosophy


This thesis consists of two essays on cornerstone investors in Hong Kong Initial Public Offerings markets. In the first essay, we study the determinants of cornerstone investors’ participation in the IPO firms, using the hand-collected information on cornerstone allocation for a sample of 872 Hong Kong IPOs. We utilise the Endogenous Switching Model to solve the Endogeneity problem between the participation decisions of cornerstone investors and the IPO firm characteristics. We demonstrate that cornerstone investors are more likely to participate in IPOs with larger firm sizes and reputable underwriters. Further analysis suggests that Cornerstone investors play a vital certification role in supporting those firms to go for listing on the Hong Kong IPO market. We find that the cornerstone investments affect the IPO short-run pricing outcomes. The cornerstone investors help reduce the underpricing level and the pricing uncertainty; they will also help the IPOs achieve a higher offer price and a larger amount of proceeds. In the second essay, we study the roles of cornerstone investors in long-term aftermarket performance; specifically, the aftermarket operating and share price performance. We categorise the group of cornerstone investors into two different types of investors, which include financial investors and strategic investors. We demonstrate that the cornerstone investors' participation tends to be positively associated with the aftermarket operating performance in the longer term. Regarding the aftermarket share price performance, we detect that cornerstone-backed IPOs tend to generate larger significant abnormal returns in the longer term. In the analysis of subgroups, we detect that the strategic-backed IPOs experience a larger outperformance than the IPOs backed by the other types of investors. These results are consistent with the findings in the robustness check. Overall, the findings in the second essay indicate that the cornerstone-backed IPOs outperform the non-cornerstone-backed IPOs for both the aftermarket operating and share price performance.
Date of Award1 Aug 2023
Original languageEnglish
Awarding Institution
  • The University of Manchester
SupervisorBrahim Saadouni (Supervisor) & Arif Khurshed (Supervisor)

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