Influence Of Restricted Independent Allocation Right On The IPO Pricing Process And Efficiency

The implementation effect of IPO inquiry system is not ideal after it was implemented in China. The phenomenon of high returns on the first day of trading and three high indexes of IPO emerged in succession. Although the government has already led some reformations aiming at all these problems,it has not been solved drastically. Reviewing the stock unseasoned issuance system and the reformations of IPO inquiry system in our country, we can discover that the IPO inquiry system of our country had been restricted by all kinds of limited conditions before December 13, 2013, especially lacking of the independent allocation right of underwriter. This is a main characteristic differing from other countries. The right of independent allocation is not conferred until December 13, 2013. But not for long, the CSRC limited the rationing mechanism again. It is deserved to be pondered over that if the restricted independent allocation right and the bad implementation effect of IPO inquiry system have some relevancies. Under the background, the paper researched the problems on IPO pricing.The paper refers to the auction model set by Bennouri and Falconieri, and uses it in the rationing of IPO. In a more common environment, it studied the strategies of IPO rationing under the heterogeneous expectations of institutional investors, and compares the result with the strategies under the homogeneous expectations. The result of the model indicates that there is a threshold value when underwriters execute the optimal rationing strategy. When all the institutional investors reveal private signals below the threshold value, the underwriter awards all the new shares to the retail investors. But when the institutional investors report signals above the threshold value, they will get a positive quantity shares which are increasing with the signals and are the solutions meeting a special equation. Meanwhile, the threshold value will get larger under homogeneous expectation of institutional investors, which implies underwriter would punish institutional investors who collude in order to get lower offering price. All the institutional investors are rationed by the same proportion. No matter heterogeneous expectations or homogeneous expectations, all the stocks would be rationed to retail investors if the institutional investors are risk neutral. Further research indicates that the quotations of book-building participants are more concentrated after the latest reformation. It shows the possibility of collusion, and underwriter increases the offering price to the upper limit to resist the collusion. The result of the next analysis of regression shows that the efficiency of IPO reduced after reformation,and proves that there is a positive correlation relationship between the diversity of quotation and IPO pricing. Combing with the increase of quotation concentration ratio, it shows that although the limitation of IPO rationing contributes to restrain the phenomenon of three high indexes of IPO,it leads to a lower offering price.