The Empirical Study On IPO Underpricing Of GEM

IPO underpricing refers to the first day closing price of the stock market is muchhigher than the issue price. Both the main market or the newly built GEM market have highrate of IPO underpricing. Generally speaking the phenomenon of IPO underpricing is moresevere in China than other developed countries. The high rate of IPO underpricing hasmany bad effects, such as, reducing the efficiency of stock issuing and the financing duringthe IPO. Moreover, if the phenomenon last long, it will encourage the market full ofspeculated emotion. This will hinder the development of our security market. Therefore, thestudy of IPO underpricing to find the influencing factors and solution of it has its certaintheoretical significance and practical significance.Nowadays, Growth Enterprise Market (GEM) in our country is still in its primary state,which indicates defects and loopholes in system, practice rules and supervision.Accordingly, the rate of IPO underpricing in GEM market in China is exceptionally high.At one point there was a200percent premium in GEM market that attracted a large numberof irrational small investors and the stronger IPO market had hit an unprecedented situation.However, in this situation, the price discovery function of share prices has been reducedand the market regulation has been weaken. Therefore the IPO underpricing research is ofparamount significance. This paper starts with the research and analysis of IPOunderpricing by integrating theory with practice and inquires about the influencing factorsof this phenomenon. Through quantitative and qualitative research, these relevant factorsare translated into variables in the research. An empirical study on this issue has beenconducted because of statistical method and finally empirical analysis leads to a reasonableconclusion and effective proposals for policy.To begin with, this thesis scrutinizes domestic and overseas literature in the field ofIPO underpricing. Based on the summary of available research results and theories, thepaper critically analyzes these research findings and gradually frames its own point of view.On account of previous theories, this study is supported and verified by two rationales,namely intermediaries reputation hypothesis and investor sentiment hypothesis. Thenexplanations and deductions are made to demonstrate the view in this paper by applyingthese two theories. A hypothesis is subsequently proposed including four parts:underwriters with higher reputation tend to reduce the degree of the underpricing of IPO;the reputation of accounting firms is in positive correlation with the degree of IPOunderpricing; the lower the success rate of new shares, the more severe of IPO underpricing;when the turnover rate on the first day of the listing of new shares becomes higher, thephenomenon of IPO underpricing is more serious.Furthermore, the research variables is designed in accordance with the hypothesis on the basis of models proposed by international and domestic academics. Thereby empiricalmodels are developed through relevant data collection and deduction. By using multivariatelinear regression analysis, a statistical software SPSS is applied to analyze variables anddeduce empirical results after systematically sorting out and analysis of the data.In the final session, this paper draws a logical conclusion in terms of research findingsand makes valid recommendations for policy makers in consideration of practices inChinese GEM market and stock market.The final empirical results of this paper show that the level of IPO underpricing inGEM market relate to the reputation of the intermediate agency to a great extent. But itdoesn’t totally conform to it. However, the theory of investors’ emotion has significanteffect. Above all, the solution maybe reforming the system of stock issue, deepening therevolution of security market, encouraging the intermediate agency to develop healthily,creating healthy invested atmosphere and restraining irrational investment.