Is Lottery System More Efficient?

The enquiry system was brought into forth in 2005, and this system has made institutional investors play a decisive role during IPO pricing. IPO pricing and allocation systems are two important aspects in the stock unseasoned issuance system in China. 2010,the second stage of IPO system reform made a great adjustment on off-market allocation in medium- and small-sized enterprises market and growth enterprise market: the off-market allocation system focused on institutional investors,which used to be pro rata system,has transformed into lottery system. After this adjustment, institutional investors who give valid offer price cannot obtain all new shares, and also make the institutional investors who win the lot for IPO get more new shares. The stock unseasoned issuance system reform theories formerly focused on the reform on enquiry system reform or the evolution on IPO system, few scholars made a systematic analysis on the influences on the change of the off-market allocation system. This paper, firstly, proposed the study purpose and meaning combined with the background, and designed the research ideas and methods. Focused on my research, I made a reasonable framework for my paper, and put forward the innovation and shortcomings in this paper.Next is the review of the relevant papers about the topic both at home and abroad. The papers abroad contribute a lot on auction and bookbuilding system theories, and the papers in our country mainly focused on the influence on administrative approval system and authorizing system, and the production of enquiry system how to effect IPO pricing and the behavior of investors. This paper concentrates on the conversion in off-market allocation system and made a brief arrangement on IPO pricing and allocation system, and also made a comparison on IPO between American market and Chinese market.And then I chose 782 companies listed on Small and medium-sized board and GEM market during July 2009 to August 2012 as sample, and made an analysis on the influence made by different off-market allocation system before IPO and after IPO. When analyzing the pricing efficiency before IPO, I used a stochastic frontier approach,and treat the IPO pricing procedure as ―product producing‖. During the procedure, I selected net asset value per share, EPS, total equity, asset-liability ratio before these companies appeared on market, and the age of companies, risks in IPO prospectus, issuing fee, issuing scale and the industry price-earnings ratio as input, and selected the IPO actual price as output. The ratio between IPO real and potential price as IPO pricing efficiency,and the comparison between different off-market allocation systems will help us know which allocation system improve IPO efficiency. Next, the cumulated abnormal return was used to measure the performance after IPO, and the long performance under different off-market allocation system can be compared.The analysis results indicated that compared to pro rata off-market allocation system, lottery system improved IPO pricing efficiency, and the new shares after IPO has a better performance. The reason of the results is that in the domestic capital market, there exists severe information asymmetry. Although medium and small investors can take participate into online issuing, most of them are lack of rationality, so the IPO pricing rights are possessed in institutional investors under enquiry system, who are more reasonable and professional. Since the institutional investors who win the lot become less than before and they can obtain more new issues, they will strengthen the supervision on listed companies in order to keep the value from decreasing, and improve the IPO long performance.In the last, a conclusion was made out. Focusing on the study above, three recommendations were proposed on investor structural, capital capacity and credit system. We sincerely hope that Chinese security market can be further improved and be more efficient, equitable, standard and diversified.