Registration reform and stock mispricing: Causal inference based on double machine learning

Abstract

The reform of the capital market registration system will affect not only the pricing of issuance in the primary market but also the pricing of circulation in the secondary market. This article evaluates the effects of fundamental institutional reforms in the capital market from the perspective of stock mispricing in the secondary market. The study finds that the registration system reform reduces stock mispricing in the secondary market, producing significant spillover effects. Mechanism analysis indicates that the registration system reform, centered on information, reduces stock mispricing by mitigating two types of agency problems and suppressing investor sentiment. This effect of rational pricing is more pronounced in companies with good internal governance and high external attention. Further analysis shows that the registration system reform primarily corrects the mispricing of undervalued stocks. These findings clarify that the registration system reform can enhance the market-based pricing mechanism, providing essential insights for China and other countries that have implemented or are about to implement capital market registration system reforms.