An Empirical Study On Influence Factors Of Initial Stock Price After The Listing Of GEM Companies

The first28stocks of the Chinese GEM IPO market were formally listed for transactionon October30th,2009, marking the official launching of China’s GEM IPO. Theestablishment of GEM is of magnificent importance to the promotion of the development ofsmall and medium-sized high-tech enterprises in high growth in China and to theimprovement of the domestic capital market to the development of multi-level structure andsystem innovation. Because the GEM listing rules are apperantly different from themain-board and SMEs board markets, the market has obviously different expectations andvaluation standard on the GME; as the listing of the GEM companies IPO brought about suchproblems as high issue price, high underpricing and high PE ratio, and caused the market todoubt on the distribution system, which eventually led to long-term IPO suspension in theChinese stock market. In this paper, the author studies the share price and the influencefactors of the share price in a certain period after the listing of the GEM companies. With amultiple regression model, the author tries to analyze and find out some obvious influencefactors of the share price of the new GEM companies so as to offer references to investorswhen they make investment decision.By employing multiple regression models, this paper conducts an empirical research on anumber of factors affecting China’s share price of the new GEM listed companies. Throughthe analysis of regression models, we found that there are two kinds of factors which have asignificant influence on China’s share price of the new GEM listed companies. The first kindis the factors associated with the IPO, including the first-day closing price and stocksallocation rate; the second kind is the factors relevant to the performances of listed companies,including basic earnings per share, net assets per share, and stock dividend ratio. Such indexesas IPO issuance scale, first-day turnover rate, net cash flow and return on equity have noobvious effect on stock prices. In addition, after the contrast study of the factors affectingstock price in the first year and that in the second year, we found that in new listings, factorsrelevant to the IPO in the factors affecting stock price in the second year have dropped andallocation rate index has been wedded out of the model; while the index influence related tothe business performance has increased, the original index weight has added, and theindicators of net cash flow has adapted to the model.Besides, through the analysis of thevolatility of stock price in the GEM listed companies, we found that the volatility of stockprice is bigger than that of in the main board companies and small and medium enterprises;and through the analysis of the price changes, we also found that the final price announced by the GEM Listing Company in the first and second times was on average16.41%、37.26%lower than the first-day closing price respectively. The conclusion of this paper shows that, ingeneral, the first-day closing price of the new GEM listed companies in our country has beenover valuated. And after the listing, within one to two years there would take on valueregression trend. There are two factors that have obvious influence on the stock price of thenew GEM listed companies, which include the relevant factors to IPO and the businessperformance of listed companies. After1or2years, the influence of the former factor hasreduced while the latter one’s has increased. Investors should not blindly pursue theinvestment of the new GEM listed companies but analyze the factors affecting the stockprices of the new GEM listed companies so as to reduce the blindness of investment andimprove the quality of decision making.