What determines the market share of investment banks in Chinese domestic IPOs?

•We examine what influences the market share of investment banks in Chinese IPOs.•We observe a structural break around 2005, when major reforms were implemented.•The effect of political connections on market shares declined as of 2005.•As of 2005, a low evaluation standard on IPO firms helps to increase market shares.•As of 2005, lower fee rates help to increase investment-bank market shares.

In this paper, we empirically examine how government forces vis-à-vis market forces have affected the market share of investment banks in Chinese domestic IPOs over the period 1995-2010. Before 2005, only political connections significantly positively influenced the market share of investment banks. After 2005, the effect of political connections declined, while a low evaluation standard on IPO candidates and low underwriting fees now also significantly enhance market share. We explain these findings by the pro-competitive, yet partial changes that were introduced in the regulatory framework for IPOs, thereby emphasizing the need for a delicate policy coordination in marketization reforms.