IPO pricing efficiency in China: A ChiNext board focus

Qi Deng*, Zhong Guo Zhou

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)


This paper examines what determines the offer price for a ChiNext IPO and discusses how we can improve the current "Chinese-style" bookbuilding process. We establish that the ChiNext IPO underwriter relies upon the institutional investors to discover the issuer's intrinsic value (in the form of a preliminary price), and that the same underwriter adjusts the preliminary price to establish the final offer price, based on its assessment of the institutional investors' motivations. Since the underwriter does not have discretionary power in new share allocation, this "Chinese-style" bookbuilding process contains certain pitfalls from an information asymmetry standpoint. The institutional investors mainly use "simple and direct" variables that do not adequately reflect the issuer's true intrinsic value to develop the preliminary price, while the underwriter adjusts that price downward to establish the offer price to clear the market, as a measure to counter a perceived free-rider issue among the institutional investors. This process, in effect, contributes to initial IPO underpricing and causes principal-agent conflicts between the underwriter and the issuer. We argue that such a pricing inefficiency could be improved by an innovative "bookbuilding plus price discretionary auction" process, which is a combination of the modified OpenIPO and Taiwan-style auctioned IPO approaches.

Original languageEnglish
Pages (from-to)280-308
Number of pages29
JournalFrontiers of Economics in China
Issue number2
Publication statusPublished - 2017


  • Bookbuilding plus price discriminatory auction
  • ChiNext IPO pricing
  • Free-ride
  • Offline and online investors
  • Principal-agent and moral hazard problems
  • Underwriter


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