Earnings Quality And Ipo Underpricing Correlation Studies

This study examines the relation between earnings quality and IPO underpricing after the IPO resumption of full circulation background in the China’s capital market since2006. The study concerns about whether the majority of investors use the companies’disclosed financial information and make a reasonable price of the IPO company.First of all, This study analyzes the relationship between earnings quality and IPO underpricing and the earnings of growth, sustainability, stability, cash supportability and security and IPO underpricing In theory. Then based on the Chinese capital market between July1,2006and December31,2010,395IPO company samples are tested positive. The study inspects the relationship between the quality of earnings and its components and IPO underpricing comprehensively, from the earnings of growth, continuity, stability, cash supportability and security in five areas. It’s tried to providing a more robust empirical evidence for financial and accounting information in IPO pricing in the use and effectiveness.After controlling of the other factors, we find that IPOs are underpriced less in companies where public firms produce higher quality earnings information. The results show that when companies in the IPO disclose the financial and accounting information, effectively reducing the degree of information asymmetry, the majority of investors can be more effective in identifying income information, and use financial information in the average to give more reasonable IPO pricing, allowing companies IPO toward a reasonable direction. So In order to reduce the degree of IPO underpricing, it is necessary to improve the company’s earnings quality.The contradiction is that the stability of returns and IPO underpricing significantly correlated. This result suggests that investors are very concerned about the benefits of its investment in the protection of capital. Investors do not focus on earnings growth and sustainability. Investors are concerned about their short-term speculative interests. When there is higher ROE, there is more speculation, then investors will increase the demand for new shares, To enhance the degree of IPO underpricing.