China’s IPO Price Suppression Problem and Its Influencing Factors Analysis

The IPO price suppression phenomenon is extremely common in both mature and emerging capital markets, and high price suppression can lead to an imbalance in the market supply and demand mechanism and affect the sustainable and healthy operation of the capital market. In the Chinese mainland market, the causes of IPO price suppression are mainly imperfect trading systems and information asymmetry. In this paper, we will use the survey method, literature analysis, and quantitative analysis to study the phenomenon of underpricing in the Chinese IPO market and its causes, comparing the Chinese IPO market with the U.S. IPO market. Using international and national statistics, we will propose the reasons affecting the IPO underpricing rate and compare the IPO underpricing difference between China and the US horizontally. Taking the Chinese A-share market as the main character, we analyze the impact of market transactions on IPO suppression and propose measures to improve IPO suppression in mainland China’s stock market.

Baron, D. (1982). A model of the demand for investment banking advising and distribution services for new issues. Journal of Finance, 37(4), 955-976, https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6261.1982.tb03591.x

Beatty, R. P., & Ritter, J. R. (1986, January). Investment banking, reputation, and the underpricing of initial public offerings. Journal of Financial Economics, 15(1-2), 213-232, https://www.sciencedirect.com/science/article/pii/0304405X86900553

Bottenberg, M. (2016). What drives differences in underpricing between the US and China? https://www.diva-portal.org/smash/get/diva2:908740/FULLTEXT01.pdf

Ibbotson, R, (1975). Price performance of common stock new issues. https://ideas.repec.org/a/eee/jfinec/v2y1975i3p235-272.html

Koh, F., & Walter, T. (1989). A direct test of Rock’s model of the pricing of unseasoned issues. Journal of Financial Economics, 23(2), 251-272, https://www.sciencedirect.com/science/article/abs/pii/0304405X89900585

Levis, M. (1990, March 1). The winner’s curse problem, interest costs and the underpricing of initial public offerings. The Economic Journal, 100(399), 76-89, https://doi.org/10.2307/2233595

Loughran, T., & Ritter, J. (2004). Why has IPO underpricing changed over time? Financial Management, 33(3), 5-37, https://www.jstor.org/stable/3666262