The Effect of Registration System Reform on IPO underpricing of GEM in China
Keywords:
DID model, Growth Enterprise Market, IPO Pricing Efficiency, registration system reformAbstract
Compared to other countries, the Chinese stock market has a more serious IPO underpricing issue. On July 22nd., 2019, China’s registration system was officially implemented by the Sci-tech Innovation Board. With the first batch of companies successfully listed on August 24th, 2020, the Growth Enterprise Market (GEM) transferred from the approval-based initial public offering (IPO) system to the registration-based IPO system, while, the Main Board was still under the approval issuance system. We collected 889 IPOs across the Main Board and GEM from July, 2019 to August, 2023 and divided the sample into treated and control groups based on the implementation of registration reform on GEM. We conducted the DID and OLS regression analyses. The empirical results of this paper suggest that the registration reform policy plays a positive role in IPO underpricing and net assets per share before the issuance of GEM IPOs is negatively related to the underpricing rate in the background of the registration system. Overall, our findings show that registration system reform of the GEM does not improve the IPO pricing efficiency. However, as a financial indicator, net assets per share before the issuance alleviates information asymmetry between investors and issuers on the GEM in the background of the registration system.
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