Can Market-oriented Reform Improve Pricing Efficiency in China? Evidence from Registration-based IPO System

Abstract

Registration-based IPO system has been regarded as the most important financial reform of China in recent years, and is expected to mitigate the severe IPO underpricing in Chinese market. Despite its importance, the impacts of the reform still remain unexplored. This paper examines the institutional investors, information disclosure, and IPO inquiry process as causes of the reduction in efficiency and makes recommendations. Our findings indicate that the reform improves price efficiency in the short and long term. After the implementation of registration-based system, the delisting of poorly performing companies is more efficient. The market-oriented reform shows its ability to improve the inclusiveness and opening-up of the A-share market, give full play to the power of the capital market in driving innovation, better serve the real economy, and contribute to state economic transformation and upgrade. At the same time, registration-based IPO system may amplify the aggressive speculation on the newly listed stocks, which blows up the aftermarket prices.