(Yicai Global) Feb. 25 -- After Chinese regulators announced on-site inspections for some of the companies that have applied for initial public offerings, 16 of the 20 firms chosen withdrew their IPO applications.

The 20 companies were selected by the Securities Association of China on Jan. 31 from 407 firms that have applied to list on the Shanghai Stock Exchange’s Star Market or the Shenzhen Stock Exchange’s ChiNext Market.

Several interviewees told Yicai Global that the companies pulled out before on-site inspections started, because based on past experience the chances of securing approval after checks was small.

Businesses subjected to on-site inspections have often been found to have questionable issues or poor-quality application materials. So to avoid possible punishment, the intermediary agencies simply withdraw the IPO filings, Wang Jiyue, a former senior sponsor representative at a securities firm, told Yicai Global.

Another factor is that regulatory scrutiny is considered to be excessively comprehensive and detailed, according to a senior investment banker. Investment banks hope that on-site inspections can be more reasonable and give companies the green light as long as there are no major problems, the person added.

Other insiders said that if a company is good enough and the intermediary agency performs responsibly, the IPO process should not be affected by on-site checks. High-quality companies with proper IPO materials do not need to worry, but for firms in a weaker position it is difficult to pass muster, according to Wang.

To help tech companies go pubic, China’s regulatory approved a listing application registration system for the Star Market and ChiNext. They usually only conduct routine inspections of IPO application materials submitted by issuers.

Editor: Tom Litting