The author examines the literature with respect to the pricing of initial public offerings and focus upon the effective factors of pricing. Using a data base of all share offerings undertaken in Hong Kong over a one year period (in 2007), the author finds that there is considerable evidence for the proposition that large and well-capitalized companies tend to price their share offerings at a higher absolute level in order to get a higher level of first-day closing price. Using classical statistical methods, the author finds that the pricing strategy of offering companies is connected to shareholders’ desire of the return. The motives for such pricing strategies, the author argues, lie with the affiliation of listing stocks with large size of trading shares and well expected return, suggesting that the pricing of new share offerings may be a means of excluding small-cap stocks from participating in the strong returns such issues exhibit. The author raises legal and regulatory implications of findings in the context of the general consolidation observed within the Hong Kong stock market in 2007.

Recommended Citation

Guo, X. (2008). The fall of long-term capital management. Lingnan Journal of Banking, Finance and Economics, 1. Retrieved from http://commons.ln.edu.hk/ljbfe/vol1/iss1/1