Study On Influences Of Private Equity Investment Upon IPO Underpricing Of The GEM’s Listed Companies

With the establishment of the Growth Enterprise Market, it provide a good financing for innovative small and medium enterprises, and promote the development of strategic emerging industries. At the same time, it also made a great contribution for the improvement of multi-level capital market. In addition to the strategic emerging industries themselves, the biggest beneficiaries of the establishment of the Growth Enterprise Market is the private equity investment institutions. The companies the private equity investment institutions to invest are generally the development potential technical advantages, the establishment of shorter, small assets of the SMEs, which never be listed on the Main Board. However, this led to the exit of private equity investment is relatively suppressed. The establishment of GME, is undoubtedly an important exit channel for private equity investment institutions to create, indirectly, to promote the development of the private equity industry in China.Whether the private equity investment in the company before IPO can affect the IPO underpricing, domestic and foreign scholars have made a lot of research. The results vary, except that some scholars believe that the private equity investment will result in higher IPO underpricing, some scholars take the opposite view. Of course, there are some scholars believe that the private equity investment doesn’t affect IPO underpricing level of listed companies. Therefore, this paper is based on data of the Growth Enterprise Market, researched the affects private equity investment impacting on listed companies.First, This article gives a review of the theory and the phenomenon of the IPO, the underpricing of China’s GEM, founding that GEM market underpricing rate is high, But with the edevelopment of the GEM.the underpricing level show a downward trend. Compared with other boards, the main reason of the underpricing of China’s GEM can be summed up as follows:Listing system and the company’s financial condition and prospects of the primary market; irrational behavior and market condition of secondary market.These factors can vaguely see the impact of private equity investment. Then,this chapter give a brief analysis of the GEM underpricing of listed companies supported by the private equity investment.Second, the article describes the present situation of China’s PE. With China’s economic development and the establishment of GEM, our private equity investments have made significant progress. In terms of funding, the number of private equity funds increased, but the average funding level of each Fund reduced.From the investment terms,the total amount of investment is in the increase,and the investment industry is concentrated in the biotechnology, healthcare, machinery manufacturing, the Internet and other emerging industries.From the exit side, the Growth Enterprise Market IPO underpricing is the main way of our private equity investments exiting the interprises.Then, this chapter analyzes the private equity investment affect IPO underpricing, thougth authenticating, providing value-added services and adversing selection effects.After the associated theoretical analysis, the article use268enterprises listed on the GEM as research objects, during the period of2010-06-01to2012-12-31, to examine the elements that affected the IPO underpricing and modified IPO underpricing. Though descriptive statistics and stepwise regression methods,the conclusions are as follows:1. In the case of the sample data, IPO underpricing exists, but the level of underpricing is much smaller than the data on domestic scholars before.2. The results of the regression analysis and the results of descriptive statistics are consistent.Ttthere are higher IPO underpricing among company supported of the private equity investment.3. The primary and secondary markets of various factors, significantly affect the listed company’s IPO underpricing.For example, the issue price, price-earnings ratio. Among all the factors, the greatest impact is the first day turnover, which shows that the speculation phenomenon of GEM market is serious.According to the empirical results, the private equity investment does not reduce the level of underpricing of the companies listed on GEM, but caused the level of IPO underpricing raise. This is mainly due to the high expectations of the GEM, which caused the breeding of speculation behavior. Secondly, there is a lack of experience and too much concerned about the return on investment of private equity investment institutions, then leading to an increase in underpricing. Finally, due to the level of private investment institutions with the number of cases and the return on investment, as the standard measure of the pros and cons of private institutions.This leads to the private industry to accelerate the pace of enterprises listed, thus resulting in a low issue price and the high level of underpricing.Finally, combinating of analysis, the article gives the following recommendations:1. Investors should be rational investment, access to a full range of investment information.2. Before in the financing, companies should know what kind of financial support is needed, and choose the right private equity investment institutions.3. Private equity investment institutions should choose a specific investment industry, and improve the ability to provide value-added services, to become a professional investment institutions.4. We needs to change the listing system, and provide more opportunity for the listing and financing of strategic emerging industries. CSRC needs to develop the supervision of the fluctuations of the stock on the first day of listing, eliminate the situation of artificial hype.The meanning of this paper is using a larger sample data and the private equity investment enterprise data given by Qing dynasties Research Center, to analysis in the private equity investment will increase the level of underpricing in China, At the same time, the articl analysis in other influencing factors of GEM underpricing, and provide reference data for future studies of private equity and GEM.