Analysis Of IPO Pricing Efficiency Under Authorizing System

From0ctober29th,2011, Shuqing Guo, the new Chairman of the ChinaSecurities Regulatory Commission, has launched more than70reform policies.Especially, IPO reform policies were very eye-catching. The direction of IPO reformis market-oriented. China has ever completed the process of transforming fromapproval system to the authorizing system in2001. Whether the transformingsuccessful and whether the IPO pricing efficiency improved not only verified thatwhether IPO reform is successful, but also indicated that whether the nextmarket-oriented goals could be realized. For this purpose, the paper compare thedifference of IPO pricing efficiency between approval system and authorizing system.First, This paper put forward the background and significance. This paper isbased on the frequent reform in China, and combined with China’s own characteristicsto research on IPO pricing efficiency, to complete the system of issuing new shares,and to promote the healthy growth of China’s stock market.Second, the paper reviews the literature on IPO pricing efficiency, and elaboratedthe important manifestation of the IPO pricing efficiency——IPO Under Pricing.Then this paper introduced three major IPO regulatory approach——the approvalsystem, the authorizing system and the registration system. This paper also introducedthe IPO regulatory approach of Germany, France, the United Kingdom, and reviewedthe process of transforming from approval system to the authorizing system in China.Third, this paper put forward the research hypothesis——the IPO pricing ofauthorizing system refects more information and more efficient than approvalsystem.This paper used the principal component analysis and multiple linearregression method, combined the data sample of1997-1999and2001-2011on theShanghai and Shenzhen market. Then compared the IPO pricing efficiency of theapproval system and the authorizing system. The result showed that: IPO pricingunder the approval system reflects very limited information, and authorizing systemreflects more information and has more pricing efficiency.Examination and approval system reflects only the secondary market supply anddemand situation of the issuing company and issue size, reflects the very limitedinformation, inefficient pricing; approval system reflects the secondary market supplyand demand situation of the issuing company, the company registered geographicaldistribution methods and scale of the issuing company and other factors, the approvalsystem under the IPO pricing reflects more information, pricing efficiency, more reasonable pricing.At last, this paper put forward some recommendations: Improve the informationdisclosure mechanism; Give underwriters independent pricing rights; Improve Inquirymechanisms; Strengthen the legal system, and improve the level of efficiency of lawenforcement and regulatory standards; Advocating rational investment, to guiderational market investment behavior.