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Collusive bidding: Evidence from China’s IPO bookbuilding mechanism reform

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  • Cao, Xiaping
  • Wang, Yintian
  • Wen, Yuxi

Abstract

This paper investigates the incentives behind investor collusion in China’s IPO market and assesses the effects of regulatory reforms on pricing efficiency. Our empirical evidence from registration-based IPOs in China between July 22, 2019 and December 31, 2022 highlights three key findings: first, before the bookbuilding mechanism reform, investors could coordinate to systematically depress offering prices below competitive levels; second, the reform, by granting underwriters greater discretion in pricing, reduced the expected payoff from collusive bidding to below that of competitive bidding, thereby substantially diminishing incentives to collude; third, as a result, the reform increased normalized offering prices by 0.885 units relative to underwriter benchmark prices and reduced first-day returns by 2.135 units. Overall, the findings highlight that enhancing underwriter discretion can be an effective policy tool to curb collusion and improve IPO pricing efficiency in emerging market.

Suggested Citation

  • Cao, Xiaping & Wang, Yintian & Wen, Yuxi, 2025. "Collusive bidding: Evidence from China’s IPO bookbuilding mechanism reform," Pacific-Basin Finance Journal, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:pacfin:v:93:y:2025:i:c:s0927538x25001982
    DOI: 10.1016/j.pacfin.2025.102861
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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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