The Book-building Mechanism And The IPO Cost: From The China IPO Market

Improving the efficiency of issue market of and marketization degree, which purpose is to reach the rational distribution of the capital is always the direction of reform and development of issue market of our country. Issuing pricing of the new stock is the important link of the new issued stock. The research of various countries shows that the underpricing of the new stock is prevalent. China, as the new developing market, makes a more surprising underprcing of initial public offering. So, the administration of issue market is always devoting itself into finding out the better pricing way to improve the efficiency of issuing pricing for stocks. The purpose of this paper is to study whether the book-building mechanism is better than the Market Payoff Rate pricing mechanism in reducing the IPO costs through the way combined with empirical and theory studies.Based on the two independent sample T-test method and the multiple regression analysis, this article compares Chinese A Shares listed company's IPO direct costs(issuance expenses) and indirect costs(underpricing rate) under the book-building mechanism and the Market Payoff Rate pricing mechanism. In the regression analysis, in view of China's unique system background, we consider the nontradable shares reform in the article. The result shows that the book-building pricing mechanism taken in charge since 2005 has no significant effect on the IPO direct costs compared with the Market Payoff Rate pricing mechanism. However, when it comes to the IPO indirect cost, the price enquiry mechanism has significantly reduced the underpricing rate and average general costs also decline compared to the Market Payoff Rate pricing mechanism. Compared with the Market Payoff Rate pricing rate, though the current pricing mechanism has no significant effect on the issuing cost of the listed companies, it has a significant one on the underpricing level and the average cost. In conclusion, the book-building mechanism is effective according to the political effect. Further more, the demonstration, on the contrary, shows the nontradable shares reform boosting the underprcing rate. This is probably because the investors have a good expectation for the stock market, which leads to a higher price of the second floor of the stock market, resulting in a higher underpricing rate.