Analysis On The Influence Of Institutional Investors’ Quotation Behavior On The IPO Pricing On The STAR Market

With the continuous development of China’s capital market,China launched the STAR Market in 2019 and took the lead in implementing a registration system,which indicates that China is gradually exploring a more market-oriented securities issuance system that is more in line with the reality of the country’s capital market.The registration system takes information disclosure as the core and strengthens the role of the market in the pricing process of new shares.The STAR Market was launched in 2019 and took the lead in implementing the registration system.Under the reform of the registration system,only professional institutional investors are retained in the offline inquiry process,excluding individual investors.Based on their own information advantages,risk bearing advantages and capital advantages,institutional investors can better discover the intrinsic value of the company through in-depth and harmonious research on the company to be listed,so as to make the IPO pricing more efficient.However,with the gradual operation of the STAR Market,there are some companies IPO price too low phenomenon.From the perspective of institutional investors’ pricing behavior,this paper studies the pricing mechanism of new shares issued under the registration system of the STAR Market,and attempts to analyze the impact of institutional investors’ pricing behavior on the STAR Market IPO pricing.This paper adopts the case study method and selects Zhengyuan Geographic Information Group Co.,LTD as the case study object.Zhengyuan Geographic Information Group Co.,LTD was listed on the STAR Marke in July 2021 with an initial public offering price of 1.97 yuan per share,making it the lowest IPO price of a listed enterprise on the STAR Marke in 2021.By studying the IPO process of Zhengyuan Geographic Information Group C.o.,LTD,this paper finds that the IPO pricing of Zhengyuan Geographic Information Group Co.,LTD is low:first,the company’s issuing price/earnings ratio is lower than the average level of comparable companies in the industry and the industry;Second,the closing price of the company’s stock has been significantly higher than the initial price.Third,the company is in a stable growth industry,industry valuation level is good;Fourthly,the company is well run,its revenue scale ranks the top in the industry,and it has competitive advantages in the industry.It can be seen that the issue price of Zhengyuan Geographic Information Group Co.,LTD is undervalued.Based on previous studies on pricing system and pricing behavior of institutional investors,this paper analyzes the impact of institutional investors’ low pricing on Zhengyuan Geographic Information Group Co.,LTD’s IPO pricing from the perspective of the STAR Market system,company fundamentals and institutional investors’ risk avoidance preference.This paper finds that in the IPO listing process of Zhengyuan Geographic Information Group Co.,LTD,institutional investors have the following motives for IPO low price:First,driven by the STAR Market IPO system.The mechanism of "high price elimination" and"four number constraint" in IPO inquiry system makes institutional investors dare not to quote high price,and quoting low price can reduce the risk of being excluded due to outlier quotation.Second,the expansion of the market under the registration system,due to the increase of the number of shares issued,leads to the decrease of investors’ enthusiasm for subscription,which naturally leads to the decrease of the issue price;Third,the fundamental situation of enterprises affects the quotation of institutional investors,and institutional investors are not confident enough to quote a high price;Fourthly,in order to avoid the risk of issuance and break,institutional investors will lower the price,which can help them earn excess returns in the secondary market.The behavior of institutional investors to underprice IPO will have an impact on market participants,listed companies and the market and system.First,institutional investors make profits in the secondary market by quoting the low price of new shares and stimulate investors to buy new shares.Secondly,the undervaluation of the issue price leads to the failure of the listed companies to raise funds in full,which brings pressure to the operating cash flow of the companies and suppresses the enthusiasm of enterprises to go public.Third,the low issue price reduces the quality of information disclosure under the registration system,undermines the efficiency of IPO pricing,and increases the instability of financial markets.