Registration system and IPO pricing efficiency: Evidence from China

This article documents the partial shift from the government-based approval system to the market-based registration system and uses a stochastic frontier model with inefficiency heterogeneity (SFMH) to separate the component of IPO initial returns into premarket underpricing and aftermarket mispricing, then examines the effect of the implementation of registration system on premarket and aftermarket pricing efficiency, respectively. The results show that the premarket underpricing is lower but the aftermarket mispricing is higher under the registration system than under the approval system. Overall, this article indicates that the implementation of registration system has improved the IPO pricing efficiency of the premarket but reduced that of the aftermarket.