A Dilemma: An Analysis of Government Intervention in IPO Pricing in China’s Securities Market

On 18 September 2021, the Shanghai and Shenzhen stock exchanges jointly proposed adjusting the threshold for high-price exclusion in offline investors’ book-building process from “no less than 10%” to “no more than 3% and no less than 1%.” Will this proposal affect investors’ bidding behavior and IPO pricing? To answer this, this paper analyses 932 stocks issued on the STAR market and ChiNext market between July 2019 and December 2023 under the registration-based IPO framework. The findings are as follows. First, although adjusting the book-building rules can effectively curb investors’ collusive bidding behavior, it has also led to the “three highs” phenomenon (high issue price, high price-to-earnings ratio, high over-raised funds). Second, the impact of the price-rule adjustment on collusive bidding and the “three highs” phenomenon is more pronounced in small-cap stocks and the STAR market. Third, the adjustments have increased the probability of new shares breaking the issue price, and led to worse post-IPO market performance. The findings provide valuable insights and references for the development of China’s securities market and investor decision-making.