The Impacts of Registration Regime Implementation on IPO Pricing Efficiency

TL;DR

This paper examines how changes in registration regimes and regulations influence IPO initial returns in Chinese entrepreneurial boards, highlighting the most efficient regulatory characteristics for optimal IPO pricing.

Contribution

It introduces a comprehensive analysis of regulation impacts on IPO pricing efficiency and identifies the registration system as the most effective regime for Chinese STAR IPOs.

Findings

Registration regime significantly affects IPO initial returns.

The most efficient regime is the registration system with specific listing rules.

STAR IPOs under registration regime show the most efficient pricing.

Abstract

We study the impacts of regime changes and related rule implementations on IPOs initial return for China entrepreneurial boards (ChiNext and STAR). We propose that an initial return contains the issuer fair value and an investors overreaction and examine their magnitudes and determinants. Our findings reveal an evolution of IPO pricing in response to the progression of regulation changes along four dimensions: 1) governing regulation regime, 2) listing day trading restrictions, 3) listing rules for issuers, and 4) participation requirements for investors. We find that the most efficient regulation regime in Chinese IPO pricing has four characteristics: 1) registration system, 2) no hard return caps nor trading curbs that restrict the initial return; 3) more specific listing rules for issuers, and 4) more stringent participation requirements for investors. In all contexts, we show that the registration regime governing the STAR IPOs offers the most efficient pricing.