Market Socialism and Economic Inefficiency: Evidence from the Chinese IPO Market

51 Pages Posted: 18 Feb 2021 Last revised: 30 Jul 2021

See all articles by Yongning Deng

Yongning Deng

The University of Hong Kong - Faculty of Business and Economics

Andrew Sinclair

The University of Hong Kong

Siqi Yu

The University of Hong Kong

Date Written: July 30, 2021

Abstract

Under market socialism, how much economic efficiency is lost in the pursuit of political objectives? We estimate that between January 2014 and July 2020, price controls in the Chinese initial public offering (IPO) market have transferred RMB 1.3 trillion (USD 203 billion) of wealth from firms to investors. On average, firms receive only 40.6% of the full market value of their shares. The majority of the wealth transferred (88.5%) has been dispersed via lottery to the general investing public, in which wealthier investors (in expectation) receive a larger share of the wealth transfer. The remaining wealth transfer is allocated to institutional investors and private individuals who bypass the lottery system.

Keywords: Market Socialism, Efficiency, IPO Market, Underpricing, Wealth Transfer

JEL Classification: G12, G28, G38, O16, P21

Suggested Citation

Deng, Yongning and Sinclair, Andrew and Yu, Siqi, Market Socialism and Economic Inefficiency: Evidence from the Chinese IPO Market (July 30, 2021). Available at SSRN: https://ssrn.com/abstract=3779031 or http://dx.doi.org/10.2139/ssrn.3779031

Yongning Deng

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Andrew Sinclair (Contact Author)

The University of Hong Kong ( email )

Hong Kong

Siqi Yu

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

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