Study On The Underpricing Of Initial Public Offering In Chinese Growth Enterprise Market

The term IPO Underpricing denotes the phenomenon that the closing price exceeds the offering price on the first day of listing securities. And it is such a common phenomenon as exists all across the world. It is one of the financial anomalies that have been haunting academic circles for years and that have been studied from different aspects by academic scholars of all nationalities. Up till now, many representative theories have been formed including the Winner's Curse Hypothesis, the Ownership Control Hypothesis, the Price Support Hypothesis, the Market Segmentation Hypothesis, the Lawsuit Avoidance Hypothesis, the Speculation Foam Hypothesis, the Short-term Profit seeking Hypothesis and so on. For the most Unusual IPO underpricing phenomenon, many national scholars studying on it from the aspect of stock issues institution hold this view that all the factors such as equity division, price and PE Control etc. are the major causes of IPO underpricing in our country. In order to find out the factors of IPO underpricing in China's Growth Enterprise Market and thinking in an entirely new view, this article, on the basis of summarizing the predecessors'research achievements, is to discuss the IPO underpricing phenomenon from these two following main aspects: (1) on the one hand, maybe the security primary market is under priced. (2) on the other hand, maybe the closing price is too high on its first day in the security secondary market.This article is presented in five chapters: Chapter One Introduction introduces the research fruits of the formers as well as the background and significance of the selected topic. Chapter Two presents some basic theories related to IPO underpricing, providing the theories foundation for the follow-up research. Chapter Three sets forth Function Orientation of China's Growth Enterprise Market together with the current IPO underpricing state and explains"GEM three high''hinders the realization of its functions thereby further clarifying the necessity of the study on it. To strive to seek IPO underpricing factors fully, Chapter Four clarifies the empirical analysis of China's GEM IPO underpricing. The last chapter puts forward some policy suggestions on how to improve IPO pricing efficiency so as to make the phenomenon for the time being better.This article makes a further refined and improvement upon the research ideas and methods on the basis of the predecessors'research fruits. Using the stock shares publicly offered and listed from China's GEM opening to Dec.31st,2010 as samples, this article conducts an empirical study on them. In the first place, after analyzing the rationality of the primary market pricing, with the method of extracting the main elements, the author not only can get evaluation indicators which will fully reflect the company fundamentals, but also can be provided with great independent variables. It is indicated that, compared with the security secondary market, the pricing efficiency in the primary market is much higher. To avoid regression analysis which is just relatively to explain the effectiveness of the indexes, this article makes use of nonparametric test to support the rationality of the primary market pricing. In the second place, since the primary market pricing is relatively reasonable, in a matter of course, this article seeks the cause of IPO underpricing in the security secondary market. This paper chooses the IPO underpricing rate as the index to measure the degree of IPO underpricing and in this paper, the author also tries to adjust the IPO underpricing rate with the market indexes. In the course of study on IPO underpricing, the author is not limited to the validity of a certain model, but values the relative significance of different models. So,on the basis of the predecessors'empirical research, after mass selecting all sorts of variables, the author makes every effort to completely make out the influencing factors of IPO underpricing through stepwise regression. The analyses reveal that during this period China's GEM and new share have been on the high side in the primary market and what's more, opportunistic practice drives the prices higher. It turned out that such indexes affect greatly adjusting the IPO underpricing as the small and medium-sized board index, the gains on the stock index of small and medium-sized board on the listing date, net profit growth, DTOR and Turnovers and so on. Based on the above, some recommendations on the improvements of IPO resource distribution efficiency are finally put forward as followed: perfect the inquiry system, introduce Green Shoe Option, and perfect the delisting system to guarantee the improvement of IPO resource distribution efficiency. And strengthen risk education for investors so that the improvement of IPO resource distribution efficiency can be achieved in time. So some of the conclusions can provide theoretical principles for the policymakers to make policies as well as they can be served as the reference of the GEM investors.