| Abstract | Evidence from developed markets shows that basis for security pricing transfers from past performance to innovation information with the development in technology. This paper investigates the role of the two types of information in IPO pricing using data from Chinext market. The evidence documented in our study is different from that in developed market. We find that the past performance, especially information on ROA, is the most important determinant of valuing a firm during both the book building stage and the IPO stage. However, the post-IPO decline in market return reveals investors’ over-optimistism on past performance. Information on innovation is value relevant only for institutional investors during the book building stage in primary market while it is not value relevant in the secondary market. The different interpretation of information on patent between the primary market investors and the secondary market investors leads to a decrease in IPO underpricing. Furthermore, we find that underwriters price the new issuers based on past performance, rather than on the innovation information. |