Price limits, investor sentiment, and initial public offering underpricing: A quasi-natural experiment based on ChiNext

Based on the data on initial public offerings (IPOs) listed on Growth Enterprises Market (ChiNext) in 2009-2018, this paper examines the impact of first-day listing price limits on IPO underpricing by adopting the event study and regression discontinuity design models. Our research indicates that the implementation of price limits significantly increases IPO underpricing by intensifying investor sentiment and encouraging market speculation. We also find that price limits have different impacts on companies with different characteristics such as innovation capacity and ownership structure. Our research may suggest how to improve the effectiveness of regulatory policy as well as current ChiNext and IPO market reforms.