An Empirical Study On The Relationship Between Ipo Over-Financing And Investor Return In Gem

IPO over-financing is a common phenomenon in the Growth Enterprise Market (GEM) in China. The funds raised in IPO over-financing can support companies expanding the main business and increasing R&D expenditures. But some theoretical studies indicate that the GEM companies can not digest the over-financed funds in short time for their small scale. The over-financed funds lead not only the increasing of inefficient investment but also the brain drain, even the waste of social resources. However, the influence of over-financing on investor return is inconclusive. Therefore, it will be valuable to do some more in-depth study.In this paper, on the basis of existing theories and literatures, we take the GEM companies which listed before December31,2012as samples to discuss IPO over-financing’s impact on investor return. Firstly, we take the GEM companies’ abnormal return on first day, first five days, and first ten days as explained variables to investigate the effect in the short run. Secondly, we calculate the investment efficiency of the sample firm in accordance with the Richardson (2006) model. Then we analysis the long-term impact of IPO over-financing on investor return from the angle of investment efficiency, and find out if investment efficiency is an intermediary variable.It is found that the GEM IPO over-financing and investor return is significant negative in both short run and long run. In the short run, the new shares enjoy high abnormal returns, but the higher IPO over-financing leads to the lower abnormal return. In the long run, underperformance phenomenon exists in GEM companies, and the higher IPO over-financing leads to more serious underperformance. The further study indicates that the presence of over-financed funds lead to insufficient investment, meanwhile insufficient investment and long-term stock returns is in negative correlation. Referencing Baron and Kenny’s (1986) method, we come to the conclusion that investment efficiency is an intermediary variable in the long-term effect of IPO over-financing on investor return. At last, we put forward policy suggestions from the viewpoint of companies, investors and Regulators, hoping to lead the GEM companies to use the over-financed funds normatively and efficiently. Then the companies can develop more healthily and rapidly, and the interests of investors can be protected better.