IDEAS home Printed from https://ideas.repec.org/a/fec/journl/v12y2017i2p280-308.html
   My bibliography  Save this article

IPO Pricing Efficiency in China: A ChiNext Board Focus

Author

Listed:
  • Qi Deng

    (Accounting and Finance Group, International Business School Suzhou, Xi¡¯an Jiaotong-Liverpool University, Suzhou 215123, China)

  • Zhong-guo Zhou

    (Department of Finance, Financial Planning, and Insurance, David Nazarian College of Business and Economics, California State University, Northridge, CA 91330-8379, USA)

Abstract

This paper examines what determines the offer price for a ChiNext IPO and discusses how we can improve the current ¡°Chinese-style¡± bookbuilding process. We establish that the ChiNext IPO underwriter relies upon the institutional investors to discover the issuer¡¯s intrinsic value (in the form of a preliminary price), and that the same underwriter adjusts the preliminary price to establish the final offer price, based on its assessment of the institutional investors¡¯ motivations. Since the underwriter does not have discretionary power in new share allocation, this ¡°Chinese-style¡± bookbuilding process contains certain pitfalls from an information asymmetry standpoint. The institutional investors mainly use ¡°simple and direct¡± variables that do not adequately reflect the issuer¡¯s true intrinsic value to develop the preliminary price, while the underwriter adjusts that price downward to establish the offer price to clear the market, as a measure to counter a perceived free-rider issue among the institutional investors. This process, in effect, contributes to initial IPO underpricing and causes principal-agent conflicts between the underwriter and the issuer. We argue that such a pricing inefficiency could be improved by an innovative ¡°bookbuilding plus price discretionary auction¡± process, which is a combination of the modified OpenIPO and Taiwan-style auctioned IPO approaches.

Suggested Citation

  • Qi Deng & Zhong-guo Zhou, 2017. "IPO Pricing Efficiency in China: A ChiNext Board Focus," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 12(2), pages 280-308, June.
    • Handle: RePEc:fec:journl:v:12:y:2017:i:2:p:280-308
    as

    Download full text from publisher

    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0013-0
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Qi Deng & Lunge Dai & Zixin Yang & Zhong-guo Zhou & Monica Hussein & Dingyi Chen & Mick Swartz, 2022. "The Impact of Regulation Regime Changes on ChiNext IPOs: Effects of 2013 and 2020 Reforms on Pricing and Overreaction," Papers 2212.11779, arXiv.org.
    2. Deng, Qi & Dai, Lunge & Yang, Zixin & Zhou, Zhong-Guo & Hussein, Monica & Chen, Dingyi & Swartz, Mick, 2023. "The impacts of regulation regime changes on ChiNext IPOs: Effects of 2013 and 2020 reforms on initial return, fair value and overreaction," International Review of Financial Analysis, Elsevier, vol. 89(C).
    3. Zhou, Zhong-guo & Hussein, Monica & Deng, Qi, 2021. "ChiNext IPOs' initial returns before and after the 2013 stock market reform: What can we learn?," Emerging Markets Review, Elsevier, vol. 48(C).
    4. Qi Deng & Linhong Zheng & Jiaqi Peng & Xu Li & Zhong-guo Zhou & Monica Hussein & Dingyi Chen & Mick Swartz, 2023. "The Impacts of Registration Regime Implementation on IPO Pricing Efficiency," Papers 2307.09669, arXiv.org.

    More about this item

    Keywords

    ChiNext IPO pricing; underwriter; offline and online investors; bookbuilding plus price discriminatory auction; free-ride; principal-agent and moral hazard problems;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fec:journl:v:12:y:2017:i:2:p:280-308. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Frank H. Liu (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.