An Empirical Study On Determinants Of IPO Offering Costs Of Enterprises Based On Principal Component Regression

Equity financing costs is one of the hot spots in the field of corporate finance. As a special kind of equity financing costs, IPO offering cost has gradually obtained wide attention from academia and industry. IPO offering costs has a bearing on the risk and profits of participants involved in the process of IPO. It can be an important reference to measure the efficiency and effectiveness of enterprises financing, as well as an important evidence of IPO pricing efficiency and the effectiveness of market-oriented reform of the issuing system.On the basis of the theories about equity financing costs, IPO offering costs is defined, and the determinants of IPO offering costs are theoretically analyzed. Then principal component analysis is adopted to extracts five principal components from the variables selected from four angles naming financial risk, ownership structure, scale and offering characteristics. By the principal components, the regression models of Determinants of IPO direct offering costs, indirect offering costs and total offering costs are established. Meanwhile, dummy variables such as industry, underwriter reputation and listing location are also embodied in the regression models. The effects of factors above on IPO offering costs are empirically analyzed, and several countermeasures are proposed to control IPO offering costs.The empirical results indicate that significant negative correlations between IPO direct offering costs and the principal components including capacity of earnings and growth, operational ability, ownership structure, scale and price are discovered, while only significant negative correlation between IPO indirect offering costs and price is found. Enterprises belong to manufacturing, information technology or social services pay high IPO direct offering costs, while enterprises from social services and cultural industries pay high indirect offering costs. A lower IPO offering costs is found in Shanghai Stock Exchange. However, there is no significant relationship between underwriter reputation and IPO offering costs. The results of IPO total offering costs are basically consistent with indirect offering costs. The effectiveness of the models are also tested, just to verify that the linear relations are reasonable.