A Study On Domestic Mechanism For IPO Pricing And Distributing

There has long been high abnormal return in the primary stock market of China, attracting a huge sum of capital lingering in the primary market seeking risk free abnormal return. It indicates that the primary market of China is inefficient. The inefficiency has led to serious results: it severely hurts the financing function of China's stock market, decreases the efficiency of resources allocation, aggravates the speculative atmosphere of the primary market, leads to the waste of social resources, and negatively affects the long term development of the entire stock market.Theoretical and empirical studies have manifested that the mechanism for IPO pricing and distributing is an important factor affecting the efficiency of the primary stock market. This paper tries to make an analysis and comparison of main IPO mechanisms employed in different countries, a review of historic transition of domestic mechanism for IPO pricing and distributing, a empirical study of the efficiency of book-building mechanism carried out in domestic market, and a study of optimal IPO mechanism for distributing, in order to improve domestic mechanism for IPO pricing and distributing, exploring useful clue for increasing stock market efficiency and reinforcing stock market function. This paper suggests that the fixed price method is inferior to the auction method and book-building mechanism in terms of information soliciting and price discovering, but there is still some discrepancy on whether auction is better than book-building or vice versa; an optimal IPO mechanism should include an inherent element, i.e., the underwriter's discretion on allocating shares, and there will exist quantity discrimination in IPO inquiry process, so that the seller can achieve higher information revenues with lager numbers of secondary market investors participating in an IPO, on the account of uniform pricing and guaranteeing the minimum share allocation for institutional investors'surplus; book-building mechanism in domestic market is not the entire one, but with the conduction of book-building method, market return of IPO shows significant decreasing trend, marching with the sector level, meanwhile, the first day return and first week return of IPO also decreasing significantly. This paper also makes policy suggestions that we should standardize domestic stock market, adopt diverse IPO mechanisms, positively establish necessary mechanism for making book-building effective, advancing reform of share rights division, founding sound pricing circumstance for book-building and improve efficiency...