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IPO Pricing Efficiency in China's A-Share Market: A Stochastic Frontier Analysis

Author

Listed:
  • Ziheng Qian
  • Nazrul Hisyam Ab Razak
  • Haslinah Muhamad

Abstract

Initial Public Offerings (IPOs) have long been a focal point in financial research, attracting significant academic and practical attention. This study examines the pricing efficiency of IPOs across various industries and sectors in China’s A-share market by analyzing data from 2,846 companies listed between January 2014 and July 2024. Using the Stochastic Frontier Analysis (SFA) model, we evaluate inefficiencies in IPO pricing, categorizing the independent variables into financial metrics (e.g., earnings per share, net assets, total assets) and pricing-related factors (e.g., financing scale, issuance costs, firm age, market conditions). The findings demonstrate that financial metrics exert a more significant influence on pricing efficiency than pricing-related factors. Moreover, notable differences in pricing efficiency are observed across industries and sectors, with the SME board exhibiting the highest efficiency and the comprehensive board showing the lowest, reflecting the unique characteristics and performance dynamics of each market segment. This study further identifies structural issues in China’s IPO system, highlighting how lower issuance prices stimulate speculative behavior while limiting the market's capacity to support economic development. These insights contribute to a deeper understanding of IPO pricing mechanisms and provide valuable guidance for enhancing market efficiency.

Suggested Citation

  • Ziheng Qian & Nazrul Hisyam Ab Razak & Haslinah Muhamad, 2025. "IPO Pricing Efficiency in China's A-Share Market: A Stochastic Frontier Analysis," International Journal of Business and Management, Canadian Center of Science and Education, vol. 20(2), pages 1-79, August.
    • Handle: RePEc:ibn:ijbmjn:v:20:y:2025:i:2:p:79
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    References listed on IDEAS

    as
    1. Hunt-McCool, Janet & Koh, Samuel C & Francis, Bill B, 1996. "Testing for Deliberate Underpricing in the IPO Premarket: A Stochastic Frontier Approach," The Review of Financial Studies, Society for Financial Studies, vol. 9(4), pages 1251-1269.
    2. Allen, Franklin & Faulhaber, Gerald R., 1989. "Signalling by underpricing in the IPO market," Journal of Financial Economics, Elsevier, vol. 23(2), pages 303-323, August.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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