Paper: arXiv 2307.09669

Authors: Qi Deng, Linhong Zheng, Jiaqi Peng, Xu Li, Zhong-guo Zhou, Monica Hussein, Dingyi Chen, Mick Swartz

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.

Complexity vs Empirical Score

  • Math Complexity: 3.5/10
  • Empirical Rigor: 6.8/10
  • Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper relies heavily on empirical financial econometrics to evaluate Chinese IPO registration regimes rather than complex theoretical math. It offers good clarity and practical insights into market design and regulatory efficiency, though reproducibility is limited by reliance on specific Chinese market datasets.

Research Flowchart

  flowchart TD
    A[Research Goal: Evaluate Registration Regime Impacts on IPO Pricing Efficiency in ChiNext & STAR] --> B[Data Inputs: China IPO Data, Listing Rules, Trading Restrictions & Investor Requirements]
    B --> C[Methodology: Decomposition of Initial Returns into Issuer Fair Value vs. Investor Overreaction]
    C --> D[Comparative Analysis: Regimes & Regulation Changes Across 4 Dimensions]
    D --> E[Key Finding: Registration Regime Eliminates Pricing Inefficiencies Most Effectively]
    E --> F[Optimal IPO Pricing Model: Registration System + No Hard Caps + Specific Rules + Strict Investor Requirements]