Registration system reform and initial public offering ownership preference: Evidence from China

Abstract

Whether registration system reform (RSR) can curb administrative intervention and create a fair market environment has long been a concern in China. We explore this issue from the perspective of the initial public offering (IPO) preference based on the entropy balancing method, and findings are as follows. First, an IPO ownership preference exists under approval system. That is, state-owned enterprises (SOEs) are more likely than private enterprises to obtain IPO approval. However, RSR significantly changes this preference, especially for non-politically connected private enterprises. Second, the post-IPO market performance of SOEs is inferior to that of private enterprises under approval system, thus excluding the view that approval is prioritized for SOEs because of superior performance. Third, compared with SOEs, private enterprises are more likely to switch the issuance system from approval system to registration system; this change makes it easier for them to obtain IPO approval, indicating that private enterprise owners perceive the registration channel to be fairer. Fourth, the effect of RSR on IPO ownership preference mainly occurs in companies in three major urban agglomerations in China—the Pearl River Delta, the Yangtze River Delta, and the Beijing–Tianjin–Hebei region—and in technology-intensive industries. Collectively, our findings reveal that RSR cultivates a fairer IPO approval process.