Optimal IPO Timing And The Evidence

Based on physical option theory, investment decision theory and game theory, this thesis setsup the IPO timing model on the assumption of liquidity shocks and the forfeit of monopoly byusing the mathematic tools of stochastic control, dynamic optimization, optimal stopping timetheory, partial differential equation and Ito lemma with the combine of enterprise’ micro-structureand different game information structure. By means of comparative static analysis and numericalanalysis, we get the connation in underpricing of new issue, long-run underperformance and thechoice of listing timing. What’s more,the paper tests the explanatory ability of this model on IPOunderpricing by the statistical data of344listed enterprises from the SME board, and the empiricalanalysis relates the cold or hot issue markets with underpricing and give some inspirations on thedevelopment and improvement of the SME board.This thesis is made up of six charpters. Firstly is the introduction, which includes thebackground and meaning of this research, the researching purpose and methods, the train ofthought and the main contents, the possible innovation and the shortcomings of the thesis.Secondly, after summarizing the related research on three strange phenomena that exsit in the IPOmarket, the thesis sums up the literature about the IPO timing in home and abroad, and analyse thestatement. Then, from the investment prospective, we establish the IPO timing model and get theexplicit and implicit solutions. And then, by means of derivative and numerical analysis, weanalyze the influences of each variable on IPO timing. To test the explanatory ability of this modelon IPO underpricing, an empirical study on SME board is designed in charpter5. Finally, theconclusion is draw, the enlightenment for the SME board’s development is given and somevaluable extensions of the thesis are put forword.The main conclusions of this thesis are as follows: firstly, the earlier the enterprises list, thefraction of shares issued, which reverses with the IPO threshold value of cash flow, is larger.secondly, the IPO threshold value of cash flow will increase with the decrease of growth rate ofenterprise’ profit or the loss caused by liquidity shock and the decline of the probability of losingsome investing projects; but it will decrease with the increase of the risk-free rate of interest orthe raising of profit’ volatility or the increase of fixed costs and the weights of high qualityenterprises. Thirdly, the degree of underpricing will decline with the decrease of loss caused byliquidity shock or the increase of the probability of losing some investing projects or the growthrate of profits and the increase o f volatility; in contrast, it will decrease with the grow up of risklessrate and the fixed costs of IPO. And the last conclusion is that the reasons of underpricing of new issues in the cold or hot issue markets of the SME board are different; The the investors’ mood, theenthusiasm of subscribing and the situation of the markets on the initial stage of listing influencethe degree of IPO underpricing significantly.