| The implementation of the registration-based IPO reform is another landmark institutional reform of China’s capital market after the split-share reform in 2005,marking that the construction of China’s capital market has entered a new stage.Specifically,the registration system has changed important part of IPO,such as issuance conditions,review inquiries and registration procedures,pricing mechanism and underwritten rules,information disclosure principles,secondary market trading systems,and regulatory penalties.The orderly implementation of each part cannot be separated from the joint efforts of the participants in each part,so that the entire system can operate successfully,which enables the capital market to realize the functions of investment and financing,price discovery,and resource allocation.In exploring the path of registration-based IPO reform,this study aims to explore the relationship between behavior of main market participants and IPO pricing based on registration system.Observing the financial market,we can find that the important participants of the market are mainly divided into investors,financial intermediaries,listed companies and regulatory agencies.Specifically,this study selects three key parts: underwriters and offline institutional investors during IPO book-building,listed companies and secondary market investors.The basis of this division is mainly from the direction of the whole system reform.First,the IPO underwriting mechanism is changed,the new regulation no longer sets restrictions on the issue price and issue scale,the lead underwriter only makes inquiries and allocation to offline institutional investors,then finally makes the final pricing according to the quotation distribution and exclusion rules.Second,the conditions for issuing and listing have changed.Previous rules of going public require companies with considerable profits,the new regulations have been gradually relaxed profit rules,which focus more on various factors such as estimated market value,income,net profit,R&D investment,cash flow,potential growth,etc.Therefore,change of the valuation and evaluation system of Chinese listed companies will certainly guide the change of corporate governance behavior to a certain extent.Third,the secondary market trading system is also changed.The registration system releases the limit of the rise and fall in the first five trading days and allows short selling on the first day of IPO,so that the secondary market traders could fully express their long-short views and improve the efficiency of price discovery.So how does the new issue price mechanism affect the behavior of underwriters and offline institutional investors under the registration system? How do the new listing conditions affect the R&D behavior of companies which have intention to go public? How does the new trading system affect the behavior of investors in the secondary market? These are the three questions explored in this paper.To answer the first question,on the basis of existing studies,this paper explores the relationship between the behavior of underwriters and offline institutional investors and IPO price under the registration system by using the data of companies listed in STAR Market and Growth Enterprises Market from July 22,2019 to August31,2022.Facts show that the value investment reports issued by underwriters in the early stage of the registration system reform still lack independence and reference.Among 140 companies issued under the registration system to be listed in 2020,only16 companies ’ final issue prices fell within the range of the underwriters’ value investment reports,which indicated underwriters failed to guide offline institutional investors to make appropriate quotations.Through the empirical analysis,we show that the offline institutional investors tend to collusion in the early stage of registration system reform.The more institutional investors participate in the bookbuilding,the lower the relative issuing price.After China Securities Regulatory Commission relaxed the exclusion range of high prices on September 18,2021,offline institutional investors turn from collusion to competition.The larger negative skewness of institutional investors’ quotes,the higher the relative issue price;the lower the concentration degree of institutional investors’ quotes,the higher the relative issuing price;the larger the standard deviation of institutional investors’ quotes,the lower the relative issuing price.This indicates that the book-building system only expands the range of inquiry objects and raising the threshold of inquiry objects is not enough to make the pricing more market-oriented,it needs to cooperate with a reasonable price elimination mechanism.Besides,we find trust companies and QFIIs are more competitive,insurance companies and securities companies are weak competitive,and fund companies and others institutional investors like private equity funds are more likely to collusion.This result is consistent with the facts that the Securities Association of China and the stock exchange issued warning letters or imposed punishment to some institutions based on the phenomenon of collusion.In addition,the degree of "greed" and the proportion of the underwriter co-investment are different,and the effect of offline institutional investors’ competitive on the relative issuing price.The higher the underwriting fee,the stronger the positive relationship between competition degree of institutional investors and relative issuing price.On the contrary,the higher ratio of underwriter co-investment,helps reduce the impact of the price competition degree of offline institutional investors on the relative issuing price.To answer the second question,this paper constructs an R&D expenditure management variable to measure the companies’ manipulative behavior of R&D expenditure.First,we find that when the R&D expenditure of a company is higher than the normal R&D expenditure in the year before going public,it will get a higher relative issuing price.Besides,the positive impact of R&D expenditure management on issuing price only happened in one year before IPO,and there is no significant correlation between R&D expenditure management two years before IPO and IPO year and IPO price.Next,we excludes the possibile influences of three-year cumulative R&D investment,three-year cumulative R&D investment proportion and patents on IPO price,and we finds that the upward manipulation of R&D investment in the year before IPO is to obtain a higher three-year compound R&D growth rate,so as to achieve a high IPO price.Secondly,for firms with cumulative R&D input of just over 50 million in three years or with a compound growth rate of just over 15% in three years,upward management of R&D expenditure does not significantly increase the relative issuing price,indicating that the market investors may recognize the manipulation of R&D expenditure to some extent.Thirdly,we try some heterogeneity analysis.underwriter co-investment system could effectively reduce firms’ behavior of upward manipulation of R&D investment.In addition,we use the data of firms listed in Growth Enterprises Market and show that if a firm disclose more information about R&D,it will achieve a higher relative valuation by upward R&D expenditure management,which could be explained that the information asymmetry between investors and companies is reduced.Finally,we find that firms with higher the proportion of the largest private equity shareholding have stronger positive impact of upward R&D investment management on the relative IPO price.To answer the third question,starting from secondary market trading system that after the registration system reform,there is no limit on the rise or fall in the first 5trading days,we explore whether the release of the first-day price limit can effectively reduce investors’ speculation behavior.Firstly,we estimate short-term effect of policy implementation,and find lower actual first-day return and shorter continuous limit-up number of days in STAR market.In addition,there is higher actual turnover rate on the first day in STAR market,which indicates higher degree of investment activity.Investors expect to quickly complete the exchange through trading in a short period of time,greatly improving the pricing efficiency.In robustness test,in order to reduce the differences between investors and companies in different segmentation of the market,we further compare the STAR market and Growth Enterprises Market without reform of registration system.Next,we compare before and after the registration system reform of Growth Enterprises Market.The results are still robust.In the long run,the releasement of first-day price limit also reduces investor speculation on subnew stock,and the turnover rate is lower in the medium and long term.Finally,we show that investors have no special preference to stocks with low PE ratio,small issuing scale and low odds of winning in market based on registration system.The possible contributions of this study are: First,compared with previous literatures which the use of underpricing rate to measure IPO pricing efficiency,this study uses the current popular valuation system in Chinese market to measure whether IPO price is overvalued or undervalued by relative issuing price,which has more practical basis.The existing literature on the behavior of underwriters and institutional investors is mainly based on the book-building system under the authorized system.Although it is called market-oriented book-building,actually is a kind of "pseudomarket-oriented".Our study tests for the first time the collusive behavior of offline institutional investors under the registration system and shows that the reform of the high price exclusion rule effectively reduce the collective price-pressing behavior of institutional investors.Second,this study enriches the research of companies’ behavior in the IPO process from the perspective of R&D innovation.Existing literature mainly focuses on the impact of innovation output(such as patent management behavior)on IPO,while we explore its impact on IPO pricing from the perspective of innovation input.In addition,the analysis of the primary market system and company innovation behavior is helpful to form a complete understanding of the relationship between the capital market system and company innovation.Third,we provides important enlightenment for understanding the effect of trading system reform under the registration system,and enriches the research on the impact of the rise and fall limit on IPO pricing.Previous researchers only discussed the negative impact on the market under the first-day price limit because the price limit has not been opened.From the reverse side of the first day price limit,we show positive effect of releasing price limit in secondary market.From the theoretical point of view,this study focuses on the regulation changes in the registration-based IPO reform,which is helpful to understand the recurring problems and difficulties in the China’s IPO market.From the perspective of practical value,this research is helpful to optimize the basic system of China’s capital market and provide some useful paths for deepening the reform of comprehensive registration system. |
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