Study In The Factor Of IPO Underpricing

IPO, as the entrance into the stock market for many companies, has played a fundamental role in capital market. On one hand, It enables enterprises that perform well in the real economy to list and raise capital at low cost and guides the optimal allocation of social resources, both of which benefit the improvement of the overall economic efficiency.On the other hand, IPO constantly provides tradable new shares to secondary market, enhances the vitality of stock market and produces new targets for investors. Meanwhile, IPO improves the liquidity of initial shares and stimulates investors’ interest in original investment. However, according to statistics, closing price in the day of its list is generally higher than the IPOs price. This phenomenon has been described as "IPO Underpricing". As a newly developing capital market, China has a more serious IPO underpricing phenomenon compared to Western developed countries. The speculation of new shares has seriously hampered the healthy and orderly development of new issues market and reduced the operating efficiency of securities market. Therefore, study in the reason of IPO underpricing rate is becoming more important in academic circles.This paper consists of two parts. Part one studies the serious IPO underpricing phenomenon in SHSE’s A-Share Market in order to explore the changes in different stages of IPO mechanism reform and the major influencing factors of underpricing rate. On the basis of previous research, this paper builds a collection of 16 variables including turnover rate. Then, we divide the total sample into several sub-samples by the time of related policy reform. Last step, we adopt factor analysis and hierarchical regression analysis to further study the main factor of underpricing rate in each stage. Result shows that six variables (turnover rate, the implement of the approval system and reform of inquiry system and so on) significantly influence underpricing rate. Since 2014, the classic calculating formula of underpricing rate has been challenged due to the 44% daily limit of IPO. At this point, part two introduces the heterogeneous expectation theory, uses the ratio of closing price of the first day that IPO turnover rate enlarges to the issue price as "new underpricing rate". Through the study between 2005 and 2014, we find that artificial limit hasn’t efficiently decreased the excess return of new-issued stocks. In the opposite, it has encouraged the speculation of new-issued stocks and thus, rather than fall, the IPO underpricing rate rises.