| Research on the Ration of Return of IPO (Initial Public Offering) on the First Trading Day (hereinafter referred to as the "Ratio of Return") has been the hot topic in the capital market for a long time. However, previous researches focused on explanation for the phenomena that the Ratio of Return is positive while the issue that the Ratio of Return is negative (namely, the price of IPO on the first trading day is below the initial offering price) was not paid equivalent attention. The fact that the price of IPO is below that of the offering price since2010seem to have become a rule, but there is still no much research on it by the scholars. Considering that GEM (Growth Enterprise Market) in China is at the initial stage, which is essential for establishment of the multilayer structure in capital market, issues in the course of the development of the growth enterprise market deserve more study. Therefore, this paper will focus on the study of IPO in GEM.It is positive in a sense that the IPO falls on its first day of trading, which proves the risk in stock market. Investor’s expectation about profit must be gained from new stock is destructed. Excessive speculation on IPO when it goes public at the first trading day may be mitigated and the phenomena that revenue produced by large sum of capital in the main board market without risk may also be effectively prevented. However, the loss of investors caused by the fall of the IPO will affect the normal development of GEM in case that the fall of the IPO lasts for a long period. Therefore, it is very essential for us to dig out the causes of the fall and take specific and effective measures accordingly to ensure the harmonious development of GEM.A lot of researches have been conducted by domestic and foreign scholars on the causes of the differences between the issue price of new shares and its listing on the first day trading price (closing price). However, foreign classic theory, although it has great insight on China IPO pricing, fails to effectively explain the price of the IPO market in China (especially the problems of a large number of IPO breaking on the first-day recently). This is because those foreign classic hypotheses are basically based on the efficient market as a prerequisite. Comparatively, the effectiveness of China’s stock market is weak, the IPO pricing system in primary market is not yet complete, and the value functions in the secondary market are not sufficient. Small and medium investors mainly occupy the structure of investors. There are a large number of speculative and non-market rational behavior. In addition, China’s stock market also has some other specialty (for example, government plays a crucial role in the development process of the stock market), and GEM is a new market that is not soundly developed. Therefore, these theories explain limitedly.The analysis that the domestic scholars study why the new shares break mainly concentrates in three aspects:the "three highs" phenomenon in primary market, the behavior of institutional investors in the secondary market as well as the macro-market environment. Unfortunately, these analysis lack of integrity and internal and there are two problems:First, no research on the deep-seated reasons behind the "three highs" issuance phenomenon is available; Second, in fact, reasons why new shares break in the GEM are complex. There are macroscopic, middle and microcosmic causes. Apparently, it cannot explain a large number of phenomenons that new shares ongoing break in China’s GEM recently very well in case of attributing to only one reason.This paper aims to analyze the factors affecting the Ratio of Return of IPO falling on its first trading day with an empirical method. The factors may partially explain why IPO at GEM falls on debut. Through regression analysis, it is found that initial offering price issuing scale and stock turnover jointly influence the Ratio of Return, which are different from the factors influencing that of the main board market. It is theoretically and realistically significant for improvement of issuing rules of IPO in GEM, protection of investor’s interest and promotion of the normal development of capital market if deep analysis is carried out on the causes of fall of IPO.The research steps of this paper are as follows:Firstly, review and summary on the achievement made by domestic and overseas study on the factors influencing the Ratio of Return will be conducted; Secondly, deep analysis will be conducted on possible influence produced by these factors on the Ratio of Return (theoretical analysis) based on GEM in China, and then research assumption will be presented and empirically demonstrated further. Finally, suggestions and policies will be given in accordance with the conclusion based on the research.This paper has been divided into five parts according to the preceding steps.The first part will expound the research background and significance, present the research steps and logical structure, determine the theoretical analysis tool and research approach, and finally point out the innovative and insufficient parts of this paper at the end of Conclusion part.The Literature Review part sums up and concludes the domestic and overseas literature concerning the factors influencing the Ratio of Return. The researches include two aspects, one is for the positive Ratio of Return on IPO (that is IPO Underpricing, the other is the negative Ratio of Return on IPO (that is Overpricing). For the explanation that why there is discrepancy between the issue price and the settlement price on the debut of new shares the major scholars study on the rationality of IPO Pricing in primary market or the deal price on the first day in secondary market.Theoretical Analysis part refers to the part in the Literature Review part regarding to the achievement made by domestic and overseas research concerning the factors influencing the Ratio of Return. Features of GEM and stock market are also taken into consideration to theoretically analysis the possible influence produced by factors concerned on the fall of IPO(the Ratio of Return is negative) and research assumption are presented thereby.The Empirical Analysis part is based on the companies of which the IPO in GEM fell on debut during the period from October31,2010to October31,2011, on the financial data revealed by these companies and on stock market on the day, which these companies went public. In this part, Multiple Linear Regression Model is employed to empirically demonstrate the research assumption deliberated in the Theoretical Analysis part. The conclusion shows that fall of IPO (the Ratio of Return is negative) in GEM is mainly close to the initial offering price, issuing scale, stock turnover and there is no close relations between return on equity, net profit growth ratio. IPO P/E ratio, the issuing interval, demand-to-offer ratio and frequency of fall. Basing on the result of the Empirical Analysis, the Conclusion part sums up the factors influencing the Ratio of Return as follows:The initial offering price has a remarkable negative correlativity with the Ratio of Return, the issuing scale and stock turnover have a remarkable positive correlativity with the Ratio of Return. Subject to the conclusion, this paper proposes as follows:Window guidance and strict implementation of obligations of each party in the course of pricing of IPO in GEM; Reinforcement of reveal of Growth Board to make the price represent the real value of the company; Strengthening the education of the investors to make them realize the risk of primary market.The innovative points and scholarly distinction lies in three aspects:Firstly, the paper is based on a fairly new angle. The previous research focused on the explanation of the fact that the Ratio of Return is positive and their field is Main Board and SME board. In this paper, the target field is GEM and the target research is about the phenomena when the Ratio of Return is negative (namely, the price of IPO on the first trading day is below the initial offering price);Secondly, the study some scholars at home and abroad worked on in the past shows that the new shares enjoy excessive premium on the first day if the issue price is low. However, in this paper, we find that the high issue price in the GEM is an important factor to result in its break.Thirdly, this Paper deeply analyses the possible influence on the fall of IPO produced by actions of interested parties in terms of issuing IPO with high price, which may give a revelation to the future study of fall with regard to IPO.Two insufficient points in this Paper are:Firstly, there are only33IPOs which fell on debut to be studied as samples, the time span and the sample size are limited due to short period since the GEM began only, therefore, the explanation on fall of IPO is necessary to be demonstrated by more samples in a long period:Secondly,this Paper mainly takes the features of GEM into consideration from the viewpoints of interested parties of IPO. However, the fall of IPO may involve many aspects such as micro-economic, even market rumors, which need more research in the future. |
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