IPO Decision Of High-tech Enterprises-Based On Firm Valuation And Issue Price Control

In recent years,along with the development of science and technology,there merged a large number of high-tech enterprises.These enterprises have the characteristics of high growth and innovation which lead to the need of continuous external financing for their projects and R&D activities.However,due to the short-time establishment and relative small scale,there is a high degree of information asymmetry between enterprises and investors.Moreover,for investor,there always exists knowledge barriers and lacks of comparable companies when they try to make valuation towards such high-tech enterprises since the business of these enterprises are knowledge-intensive and cutting-edge.Therefore,for high-tech enterprises,they are often faced with unknown market conditions and investor belief.And for investors,there always have difficulties when make valuation towards these unfamiliar enterprises.Based on the analysis framework of Aghamollay and Guttmanz(2015),this paper constructs a dynamic game among multiple enterprises who decide when to make IPO in three periods.The model considers the intrinsic value of the enterprise,the asymmetry of the information,the sentiment from market investors and influence from other enterprises’behavior.Beside take the specific price control in IPO pricing in China,the model analyze the influence of the price limit on IPO decision.The model has the following conclusions:First,the idiosyncratic factor,such as the financial performance and the operation ability,determine the intrinsic value of the enterprise.The higher the idiosyncratic factor the sooner the enterprise chooses to go public.And the idiosyncratic factor of the enterprises that have IPO in the first period is high than those go public in next period.Second,common factor,such as information asymmetry and the investor’s market sentiment,reflect factors that influence all IPOs in the market.The lower the common factor is,the fewer the number of IPO in the next period.Third,once there implements price control on IPO pricing,the threshold of firm’s IPO decision decreases.That is,under the price control,enterprises are more incline to have IPO as soon as possible.In consideration of availability of relative data,this paper puts forward three testable hypotheses about the IPO decision-making of high-tech enterprises without price control:the idiosyncratic factor of the first-period listed enterprises are higher than those of the latter;the common factors are subject to the first-order autoregressive process;the higher the common factor,the more the number of IPO in nest period.In the empirical research,the dataset contains data of finance and pricing performance and application time of IPO of 299 companies listed on GEM from October 30th 2009 to November 15th 2010.Using factor analysis,this paper extracts 5 factors that represent the idiosyncratic factor:solvency,profitability,scaler,growth and intangible assets.And two factors representing common factor:information asymmetry and investor sentiment.Through the empirical test,this paper mainly draws the following conclusions:First,the higher the growth of the enterprise,the less the proportion of intangible assets,the greater the debt pressure,the smaller the size,then sooner the time of going public.Second,the information asymmetry and investor sentiment which represent common factor are following the first-order autoregressive process.That is,enterprises can postpone the IPO to take advantage of the real option stem from the mean-reverting progress of common factor.Third,under the IPO approval system,although enterprises can choose when to apply for listing,they must wait for the approval from CSRC.Thus the actual time of IPO is highly un uncertain.So for enterprise,the common factor of the period before they make application is of no use to estimate the common factor of the period they are approve to go public.