Effects Of Pricing At IPO On The Corporate Investment Efficiency

Although a series of measures have been taken, the bubble in Chinese Stock Markets appears frequently. After opening of the GEM(Growth Enterprises Market) in 2009, the phenomenon of "three highs"(high price-earnings ratio, high issue price and high over-financing) is prominent. Businesses raise a lot of money through the IPO, but the using of funds is ineffective. Owing to managers’ inability to control the over-financing funds or in order to pursue their own interests, they use a lot of cash flow to invest in casual, eventually leading to over-investment. Or vice versa, in order to avoid the risk and maintain their reputation, managers put the idle funds in the bank, finally leading to under-investment. Currently, numerous studies on investment efficiency are based on corporate governance factors. Part of the literature discusses the relationship between inefficiency-investment and over-financing. But the relationship between the IPO overvalued and the investment efficiency is rarely involved.We select 1214 IPO listed companies on the A-share market from 2009 to 2015 as research samples. This paper examines the relationship between the IPO overvalued and the investment efficiency. Firstly, we conduct a descriptive statistics for total A-share, to observing whether the new regulations of April 2012 and November 2013 effect on the IPO overvalued phenomenon. Then we compare and analysis the difference of IPO overvalued phenomenon between the Main Board, the GEM and the SME(small and mid enterprise board). And then later, the paper use the modified Richardson(2006) model to estimated the inefficiency investment on each board. Finally, we analysis the relationship between the IPO overvalued and the inefficiency-investment on each board, with the residuals as the dependent variable and the pre-IPO PB as the explanatory variable.The results show that: Overall, the higher the IPO pricing, the more serious the inefficient investment.(1) On the A-share Market, the pre-IPO PB have a significant positive correlation with the inefficiency investmen, over-investment and underinvestment. After the breakdown of the plate:(2) Whether on the GEM, SME or Main Board, the pre-IPO PB have a significant positive correlation with the inefficiency investment and under-investment.(3) On the GEM and SME, the pre-IPO PB have a significant positive correlation with the Over-investment. On the Main Board, the preIPO PB have a inconspicuous positive correlation with the Over-investment. In addition, the paper also found that(4) After 2012, the Pre-IPO PB significantly reduce, that IPO overvalued issue has been effectively suppressed.(5) The IPO overvalued on SME and GEM are significantly more serious than the Main Board. The IPO overvalued on SME is significantly more serious than GEM.