Why Do Chinese Companies List Overseas?An Explanation from IPO Pricing"Window Guidance"
In recent years,China's economy has been undergoing a historic transformation from accelerated growth to high-quality development,and the industrial upgrading that has been implemented has been really effective.However,most of the leading firms present in the new booming economy have chosen to go public overseas,and the domestic capital market has been behaving bearishly for a long period of time due to a lack of high-quality investment targets.In this context,this paper argues that the implicit pricing restriction of 23 times the P/E ratio imposed on the main board IPO market since June 2014 entails a high institutional cost for the IPO of high-value firms,so they instead take the decision to go public abroad.Based on theoretical model predictions,the paper uses data from 2,152 domestic and overseas listing events from 2009 onwards to enable an empirical study in a generalized cohort difference-in-differences(DID)model.The results of the study confirm that the IPO pricing restriction significantly increases the likelihood of high-value firms going public abroad.This finding satisfies the parallel trend assumption and remains robust in alternative measurement of key variable and placebo tests.Other tests also suggest that the underpricing of overseas IPOs is significantly lower,and the absolute and relative sizes in financing turn out to be significantly larger.The gradual reform of the registration-based system initiated in 2019 has reversed the trend of high-value firms going public abroad and reduced underpricing,with the effect becoming more evident following the implementation of the new IPO inquiry regulation in September 2021.However,the size of domestic financing remains a disadvantage.The conclusion of the study indicates that the pricing restriction turns the domestic IPO market into a negative screening mechanism and hinders the development of the capital market.The comprehensive registration-based reform in early 2023 brought IPO pricing back to the market track,helping the financial sector better support the real economy and promote high-quality economic development.