Market Socialism and Economic Inefficiency: Evidence from the Chinese IPO Market
51 Pages Posted: 18 Feb 2021 Last revised: 30 Jul 2021
Date Written: July 30, 2021
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
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