Company Internal Governance Structure And IPO’s Abnormal Initial Returns Of Listed Companies

ChiNext starts public trading on Oct30,2009. The opening of ChiNext not only broadens the financing channel of minor enterprises, but also provides a way out for venture capitals, hence has great historical meaning in consummating the construction of multi-level capital market in China. However, there exists several problems during the development of ChiNext, among which IPO’s abnormal initial return is a common phenomenon. Chinese scholars have conducted many researches on this phenomenon and given reasonable explanations, but ChiNext’s IPO’s abnormal initial returns is still much higher than the main board, and even largely outperforms western mature markets. Therefore, we need to explore answers further.Company’s internal governance structure refers to the power distribution and counterbalance across the board of shareholders, board of directors and board of supervisors, as well as the supervision of directors and supervisors on senior management. In recent years, several documentary researches indicate that company’s internal governance structure can affect its IPO’s abnormal initial return. Whether or not company internal governance structure has influence on IPO’s abnormal initial returns of listed companies in ChiNext? What are the influencing factors? What is the degree of this influence? These are the key points which will be discussed in this paper.In this paper, we select204listed companies of Shenzhen Exchange between Jun1,2010, the origination of ChiNext Index, and Feb29,2012as the research sample to analyze the effects company internal governance structure has on IPO’s abnormal initial return. We utilizes a method which combines normative research with empirical study and applies SPSS to carry out an empirical analysis. By beginning with the five mechanisms of company’s internal governance structure and studying their influences on underpricing and overpricing of IPO’s abnormal initial returns, we enriches the empirical researches concerning ChiNext listed companies.On the whole, the content is divided into theory study and empirical analysis, where the theory study is the foundation and empirical analysis is extension. The emphasis part is the empirical test on the effect company internal governance structure would have on underpricing and overpricing of IPO’s abnormal initial returns referring to ChiNext listed companies. The paper is separated into five sections: The first section is introduction. It describes the background, objective, significance, research method, research thinking and major innovations of this paper.The second section is literature review. The paper elaborates from three aspects:primary market underpricing theory, secondary market overpricing theory and company internal governance structure along with the relationship between company internal governance structure and IPO’s abnormal initial returns. It concludes the achievements many scholars have obtained from researches on IPO’s abnormal initial returns considering primary market underpricing, secondary market overpricing and company internal governance structure. This section lays corresponding theoretical basis for my study, and provide references for select ing and configuring needed variables in later sections.The third section describes the main conditions of ChiNext IPOs. It briefly reviews the general states of ChiNext market and specifically elaborates the features those ChiNext possesses. By taking current development status of ChiNext into account, we can discover the necessity of proceeding an in-depth research towards this topic, which lays a foundation for the selection of influencing factor variables of ChiNext company’s IPO’s abnormal initial returns.The fourth section carries out an empirical study on the influencing factors of ChiNext listed companies’IPO’s abnormal initial returns based on their internal governance structures. This section follows the assumptions presented in Section3, utilizes the data of ChiNext listed companies and conducts descriptive statistics and multiple linear regression analysis. The research result indicates:underpricing rate is negatively related to percentage held by senior management, percentage held by supervisors and board size; overpricing rate is negatively related to percentage held by senior management, board size and " Four Committees" numbers; turnover rate is positively related to both underpricing and overpricing while lot winning rate is negatively related to the two,while the different factors have different influence of underpricing and overpricing. At the end of the fourth section, I also analyze the causes of these findings.The fifth section makes conclusions for the whole research and proposes policy suggestions. It summarizes the general first-day earnings of ChiNext IPOs, concludes major influencing factors studied in the empirical research, analyzes the causes behind these factors, and finally come up with policy suggestions toward the empirical research results.The research on the effect of company’s internal governance structure on ChiNext IPO’s abnormal initial returns views the causes of first-day excess returns from a new angle. It is believed to benefit the development of IPO theory, the consummation of internal governance structures of ChiNext listed companies, the modernization of Chinese security market as well as the consummations of the IPO public offer in China and the new stock audit system.Since ChiNext is originated not long and still has a short history, this paper looks on the IPO data for only204ChiNext listed companies. As a result, the influences that company internal governance structure could pose on the underpricing and overpricing of IPO’s abnormal initial returns haven’t revealed completely. It is suggested that subsequent studies prolong the sample term and conduct a follow-up research concerning the first-day excess returns of ChiNext listed companies.