Chinese Stock Issue Pricing

Since 1990,China' s stock market has achieved qua I itative advance both in depth and width in the context of rapid economy growth and far-reaching reform. As a result,it i s p I ay i ng a more and more important role i n the nat i ona I economy. Nonetheless,we should be clear-headed to recognize that the young Chinese stock market is sti 11 suffering severe "i 11 ness" . The heated debate between Detrude-and-Start-from-Scratch -again and Do-Not-BIame-A-Baby has urged market participants to envisage the reality.Primary market is the base of the total stock marker,and the formation of IPO price not only reflects market maturity,but also constitutes the base for healthy function of the stock market and efficient resources a I location. Though China' s primary market has grown rapidly,explicit and implicit administrative control and defects in pricing mechanism and methods have led to the long-run inefficiency of primary market:on the one hand,high IPO under-pr icing coexists with the risk-free return between primary and secondary markets;on the other hand,the relationships among issuers,investors,regulators and underwriters are greatly distorted. In fact,IPO has become a process of rent seeking,and over makeup and frauds have become a normal phenomenon. Therefore,IPO price can' t reflect the real value of the issuer,and the primary market can' t efficiently allocate funds.Due to its comb i nat i on of theory and practice,IPO pricing has been widely regarded as a d i f f i cu 11 prob I em i n the f i e I d of f i nance. There are many pr i c i ng models and at the same time market environments in different countries are highly differentiated. So,a systematic study on China' s IPO pricing is of great significance for the reform of IPO,the improvement of primary market efficiency,the perfection of primary market function,the enhancement of investment banks' competence in their core business,maximization of issuers' revenues and the guidance of investment decisions.The dissertation consists of six chapters:Chapter I mainly covers the dissertation' s background,significance and references,as well as the research scope,methodology,structure,some key points and innovations.Chapter II summarizes the IPO pricing theory and its evolution. The author classified different theories in terms of the difference in premises. In this chapter,the author also discussed the meaning,theoretical base and defects of (EMH) Efficient Market Hypothesis,as well as its application in different market situations.Chapter III is a comparative study. Through the address of general theory and methods of IPO pr i c i ng,the analysis IPO pricing methods in western markets,and a contrast with China' s practices,the author i I lustrated the difference between Chinese and western markets,and the institutional factors that led to the difference.Chapter IV studies western IPO under-pr icing theories and tests their value in explaining China' s IPO under-pricing. In this chapter,the author sumnarized and classified foreign theories about IPO under-pricing,and then studied the characteristics of IPO under-pricing in China. In addition,the author tested various theories' application in the Chinese context,and made an analysis of outcomes of positive research.Chapter V analyzed the characteristics of secondary market,the institutional arrangements,and factors that led to the severe under-pr icing in China' s IPOs. The author first discussed the characteristics and functioning efficiency of secondary market,then used traditional financial theories and behavior theory to bui Id a multi-factor cross section model of secondary market price,and conducted a positive study on the model. Final ly,taking consideration of the special characteristics of China' s primary market,the author put forward three hypothesis about IPO under-pricing and made related positive test.Chapter VI gives a model for IPO pricing in China,and makes some pol icy suggestions to improve the efficiency of primary market. The author firstly analyzed the efficiency of...