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Estimating the Model for Seasoned Equity Offering Underpricing: Application to the Chinese Financial Market

ABSTRACT We estimate the binomial probit model to examine the significance of important explanatory variables documented in seasoned equity offering (SEO) underpricing literature using two statistical approaches: maximum likelihood estimation and Bayesian estimation. In particular, our estimation relies on SEO-related data in the Chinese financial market, where the pricing mechanism is less transparent compared to that in the U.S. market. We find that the signs of coefficients for the explanatory variables in each model are not different, but their magnitudes appear to be different. Our finding also shows that estimation results are generally consistent with the results observed in the U.S. market.