IPO regulation and the quality of listed firms: evidence from on-site inspections in China
研究中国证监会现场检查对A股公司质量的影响，发现检查降低了IPO通过率、提高了撤回率，并改善了被检查公司的质量，尤其对非国有企业效果显著。
Purpose This study investigates the impact of initial public offering (IPO) regulations, specifically on-site inspections, on the quality of firms listed in China’s A-share market. By using a random quasi-natural experiment, we examine whether these inspections effectively improve firm quality, focusing on changes in IPO approval rates, withdrawal rates and subsequent firm performance. The findings aim to assess the efficacy of public enforcement in IPO processes, providing insights into policymaking for improving the quality of listed firms. Design/methodology/approach We use a random quasi-natural experiment, analyzing the impact of IPO on-site inspections by the China Securities Regulatory Commission (CSRC) on A-share firms from 2014 to 2021. The analysis employs descriptive statistics, regression models and heterogeneous analyses to compare firm quality metrics, such as profitability, market reactions and investment efficiency, between inspected and non-inspected firms. Mechanism analysis is also conducted to explore the role of enhanced information disclosure and more rigorous screening processes. Findings On-site inspections significantly decrease IPO approval rates and increase withdrawal rates, leading to improved firm quality for inspected companies. The improvement is particularly noticeable among non-state-owned enterprises (non-SOEs) and firms with close shareholder associations. Mechanism analysis suggests that these improvements are due to stricter screening and enhanced information disclosure. Additionally, we find spillover effects, where firms in the same industry as inspected firms also demonstrate higher quality. Overall, the study confirms the efficacy of IPO public enforcement in enhancing market performance. Practical implications The study provides practical insights for regulators on enhancing IPO firm quality through random on-site inspections. The results suggest that such regulatory measures can effectively improve corporate transparency and operational standards, especially for firms that are more likely to engage in misconduct. Policymakers can consider these findings to strengthen public enforcement mechanisms in emerging markets, aiming to improve stock market performance and investor protection. Originality/value This study provides novel empirical evidence on the effectiveness of IPO on-site inspections as a public enforcement tool in enhancing firm quality. Unlike prior research that primarily examines underpricing or financial reporting quality, this paper focuses on the broader impact on firm quality, profitability, market reactions and investment efficiency. The findings contribute to the literature on regulatory efficacy in the IPO process and provide policy recommendations for strengthening capital market regulations.