Information spillovers and partial private-sector oversight: An empirical analysis from China’s IPO market

This thesis examines information spillovers and partial private-sector oversight in the context of initial public offerings (IPOs), using a unique mainly hand-collected dataset from China’s A-share market. By exploiting the announcements of investors’ bidding results under the hybrid IPO auction mechanism, Chapter 2 examines the effect of information spillovers on investor participation and IPO price discovery. This study found that the information produced by contemporaneous investors with different levels of sophistication affects the investor participation and price revision for current IPOs in different ways, suggesting that the informativeness of contemporaneous bidding results varies based on investor sophistication. Additionally, the information generated by institutional investors when participating in the current sealed-bid auction influences the retail participation in the current public tranche.
China’s IPO market has moved from centralized governmental oversight to partial private-sector oversight by introducing a sponsorship regulatory system. Chapter 3 details the sponsorship system’s role in mitigating IPO underpricing. Relative to the period when government agencies took sole charge of IPO oversight, firms suffer less underpricing when going public under the sponsorship system. The reputation of sponsoring entities and their premarket information production contribute to explaining the reduction in IPO underpricing. The China Securities Regulatory Commission (CSRC) plays a specific role in lowering underpricing by imposing sanctions on sponsors.
By using buy-and-hold returns and Fama-French five-factor models, Chapter 4 demonstrates that the long-run performance of IPOs screened by the sponsorship system is better than under government-dominated systems. Furthermore, IPOs with reputable sponsoring entities perform better and quickly gain CSRC approval. The CSRC’s regulatory review of IPO admission documents has a negative impact on long-run performance. The regulatory actions taken by the CSRC are effective, as the number of IPO businesses has declined for the sanctioned sponsors and the IPOs managed by representatives perform better once they receive a penalty.