Study On The Relation Between Ways Of Issuing, Underwriting And IPO Issue Costs

IPO issue costs as a special kind of equity financing costs, is the outcome of thegame among offering participants (issuers, underwriters and investors). It is veryimportant for the enterprise financing efficiency, and be a significant indicator measuresthe IPO pricing efficiency and market reform achievement of issue system. In morethan20years development history of IPO market in China, the ways of issuing has gonethrough the purchase of a subscription card, savings-linked and full pre-paid, onlinebidding, issue at set price on network, online inquiry, allot and sale in second market,and allot and sale combined with issue at set price on network. In the different stages,what about the IPO issue costs? The long-term seller’s market structure formed inChina’s stock market makes the most issuers use the firm-commitment contract, whatabout the efficiency of firm-commitment contract to best-efforts contract? This questionis worth to be discussed.Previous studies has mostly analyzed the phenomenon of IPO under-pricing, lesspapers studied on the direct and indirect issue costs in perspectives of ways of issuingand underwriting. So, base on different ways of issuing and underwriting, this paper hasused the multiple linear regression analysis tool for the empirical study on the direct,indirect issue costs and issuing efficiency of IPOs in China’s A-share Stock Marketswith the issue expense rate, issuing efficiency indicators designed and adjustedunder-pricing rate index, and hope to provide reference for the IPO institutional reformin China and the issuing company to select what ways of issuing and underwriting.The results show that the system of allot and sale in second market would add thedirect issue costs, but greatly reduce the IPO under-pricing rate, and finally improve theissuing efficiency. The issuing way that allot and sale in market combined with issue atset price on network has not only improved the IPO under-pricing rate, but also reducedthe issuing efficiency. In addition, the direct issue costs of IPO under firm-commitmentcontract is larger than the ones under best-efforts contract, and the best-efforts contractcould improve the issuing efficiency in certain extent.