The Study On IPO Underpricing Of GEM

IPO underpricing phenomenon refers to the financial vision that the closing price of new shares listed on the first day is much higher than the IPO price and there is an excess return on the first listed day.Since the founding of the GEM in China,the market has been faced with problem of high IPO underpricing; after nearly six years of development, the condition of IPO underpricing gets eased along with the development of the market.However,IPO underpricing rate is still at a higher level compared with the mature market.The existence of the high underpricing damages the function of resources allocation and financing in capital market.Many domestic and foreign scholars explore the deep-seated causes of this financial vision from different perspectives.Based on previous research,this paper studies IPO underpricing problems from the perspective of investor sentiment and underwriter reputation and analyzes how investor sentiment and the underwriter reputation influence the IPO underpricing of GEM.On this basis,the paper seeks effective solution strategies.It would not only enrich the domestic and foreign related study of IPO underpricing,but also provide reasonable ways to solve high IPO underpricing problem of GEM,showing a fixed practical and theoretical sense.The first part of this article introduces the background and significance firstly and analyzes the main research ideas, contents and methods.Then it points out the innovations and deficiencies of this paper.In the second part, the paper elaborates the related research results both at home and abroad from four aspects which are the measurement of investor sentiment,the measurement of underwriter reputation,the effect of investor sentiment on IPO underpricing and the effect of underwriter reputation on IPO underpricing.And the latter two aspects are further subdivided to two angles of empirical research and theoretical research.Then the paper summarizes the results of above study achievements. On the basis of research achievements of previous scholars,the theoretical foundations for this article take shapes, which are the investor sentiment theory and the underwriter reputation theory.In the third part, this paper introduces the generalization of the growth enterprise market in China and the NASDAQ market,including the creation purpose and function,market conditions,the listing requirements and listing procedures.Then this part compares this two market from five aspects which are independence,hierarchical structure, issuance examination system, trading system and share pricing mechanism applying comparative analysis method.Finally,the paper also compares IPO underpricing level of the two market and concludes that the IPO underpricing rate of the GEM in China is much higher than NASDAQ market from the creation of China’s GEM to the first quarter of 2015.In the fourth part, this paper puts forward the research hypothesis-namely the investor sentiment and IPO underpricing rate have a positive relation;underwriter reputation and IPO underpricing rate are negatively correlated. Then this part analyzes the influence factors of IPO underpricing from three angles which is internal factors(including financial factors and non-financial factors), external factors (including market factors, industry factors, macroeconomic factors) and IPO-related factors (including the total amount of raised funds,the waiting period for listing,the proportion of circulating shares, etc.).As there are many financial factors,this paper firstly uses the factor analysis method to extract the main factor to attain the goal of dimension reduction before making empirical analysis,eventually forming four principal component factors which are profit factor, growth factor, debt service factor and operational factor.Then his paper tests on two hypotheses using empirical analysis method.All empirical studies make listed companies in GEM from October 2009 to the first quarter of 2015 as a sample.When making empirical research about investor sentiment and IPO underpricing,firstly this paper gives tests on the pricing efficiency of new shares resulting in the view that the issue price of new shares in the primary market is relatively effective.Secondly the paper builds a investor sentiment index of secondary market as explanatory variable and makes more than ten relevant factors such as firm age, the proportion of the top ten shareholders, the proportion of circulating shares and so on as control variate, establishing regression model, using stepwise regression method, to analyze how investor sentiment of circulation market affects on IPO underpricing. Finally it is concluded that investor sentiment of the secondary market has a significantly positive impact on IPO underpricing,which is consistent with the assumption.When making empirical research about underwriter reputation and IPO underpricing, this paper arrives at reputation rankings of our home underwriter using data of the main underwriting amount and number. Secondly,this paper puts underwriter reputation as the explanatory variable and puts more than ten factors such as online purchase ratio,the total raised funds,financial factors and so on as control variables, establishing regression model, to analyze how underwriters’reputation influences the IPO underpricing. What follows by is stability testing.Finally it concludes that underwriter reputation and IPO underpricing have no significantly negative correlation relationship.The fifth part further summarizes the research conclusion of the full text.Optimistic sentiment of circulating market would promote closing prices of new shares on the first listed day and underwriter reputation mechanism still couldn’t fully suppress the IPO underpricing.In addition, according to research conclusions, the paper gives relevant suggestions at the aspect of the investors, underwriters and systems.