IPO Pricing Efficiency And Wealth Allocation Under A Series Of Reforms On The IPO Book-building Mechanism In China

Since the implementation of IPO book-building mechanism at China stock market in 2005,there are some serious problems about high initial return,including"three-high" issue,abnormal high reduction of old shares,the bloom of new shares and a series of problems during IPO pricing process.Although the CSRC(China Securities Regulatory Commission)has implemented six reforms to improve this system since 2009,it always attends to one thing and loses sight of another in the process of these reforms.New problems are always accompanied by the settlement of old ones,especially the high initial return and "three-high" issue of IPO cycle recurring.So,this paper studies IPO pricing efficiency and wealth allocation based on the IPO book-building mechanism with Chinese characteristics and its progressive reforms,especially in the first reform of June 2009 and the fourth of November 2013.First of all,from several dimensions of IPO pricing,which includes the choice of referential benchmark,the comparison of IPO relative pricing and the stability of share prices after the IPO,this paper uses the empirical methods of PSM to offer more scientific assessments for the IPO pricing efficiency under the Chinese IPO book-building mechanism,and provides theoretical explanations for IPO anomalies appearing in the process of the reform.Then on the basis of the theoretical analysis of the IPO pricing mechanism and pricing efficiency,under full consideration about IPO stakeholders’(mainly include issuers and external investors)coordination and conflicts of interest,this paper uses quantitative method of wealth allocation,learned from Sloan(2015),to provide more scientific studies and analyze on the wealth allocation of stakeholders before and after the first reform,further revealing the current problems existing in the process of progressive reforms.Firstly,we measure the change of stock prices after IPO by the long and short-term gains and volatility of the IPO stocks.The result shows that Stock’s issue price has failed to fully reflect stock’s intrinsic value and change change around its issue price,both before and after the first and the fourth reform.To some extent,this illustrates that these series of reforms on IPO have not really improved the efficiency of IPO pricing.Then,we use PSM method to measure the efficiency of IPO pricing.Furthermore,we conclude that both of the first and the fourth reform failed to really improve the efficiency of IPO pricing.The discount of IPO led to high initial returns before the first reform,while the overpricing of IPO resulted to three-high problem after the first reform.The discount of IPO again triggered new shares soaring after the fourth reform.Finally,we study the reason behind IPO pricing mechanism from the perspective of the stakeholders in the process of IPO,finding that the first reform has not really improve the efficiency of IPO pricing,just changing the original wealth allocation.Before the first reform,the discount of IPO made wealth allocation benefits for external investors.After the first reform,stocks issued at a premium,which made wealth allocation benefits for the issuer.Finally,aiming at these results of a series of reforms on IPO,this paper puts forward to some advises,comprising further promoting the reform of IPO system and gradually transforming the current approval system to registered system to change the scarcity of IPO resources and the phenomenon of speculation.