Partial private sector oversight in China's A-share IPO market: An empirical study of the sponsorship system

The Chinese IPO market has introduced the private oversight of sponsors under tight government control. We examine the performance of IPOs that are managed under private sector oversight, known as the sponsorship system. Using buy-and-hold returns, operating performance measures, Fama-French five factor models, propensity score matching, and triple DiD (DDD), we find that long-term performance is better under the sponsorship system. Additionally, we find that IPOs with reputable sponsor institutions and reputable sponsor representatives perform better. Relatedly, the CSRC takes less time to review the admission documents prepared by reputable sponsor institutions. Regulatory action taken by the CSRC is shown to be effective, as the number of IPO businesses declines for sanctioned sponsor institutions, and the IPOs managed by them perform better once they have received a penalty.