Chinese Stock Market Ipo Yield Empirical Research

The abnormal return for Initial Public Offering (IPO) is a long-term hot issue which is debated by researchers both in China and at abroad, this issue mainly includes the initial underpricing and the long-term poor performance. In the foreign literatures, the researchers only focused on the behavior analysis for market participants while the impact of offering system is often neglected. However, the author, who has the same opinion with other Chinese researchers, thinks that the change of the offering system is the pre-condition for the research on IPO abnormal return. The market participants should have different behaviors under different system. Therefore, after absorbing the succeed experience of foreign researchers, who applied the information efficiency theory and behavior finance theory to the impact of market participants behavior on IPO abnormal return under the condition of information asymmetry, this paper systemically studies the performance, characteristics, reason and internal relationship of IPO abnormal return, and proposes some suggestions on how to reduce the IPO abnormal return.This study includes seven chapters. Chapter one is the introduction and chapter seven is the main conclusion. Chapter two defines the IPO underpricing and long-term poor performance and describes the computation method for the short and long term IPO return. It generalizes all kinds of hypothesis on IPO abnormal return in foreign literatures. Chapter three and four focus on IPO underpricing. Chapter three analyzes the systemical and non-systemical factors: the systemical factors include offering pricing system, information disclosure system and offering checking system. The non-systemical factors include the behavior of three kinds of market participants: issuer, investor and underwriter. These reasons resulted in the difference for IPO underpricing is compared in different ways: between Chinese market and foreign market, among different systems. In chapter four I tested the hypothesis for IPO underpricing in the foreign literatures and generalizes the specific non-systemical factors for Chinese market. Taking the offering system change into account, we find the final main factors for Chinese IPO underpricing. The conclusion resulted from empirical research shows a positive relationship between the IPO underpricing andboth of market information asymmetry and market arbitrage. The offering system reform enhanced the significance of each variable, but didn't reduce the initial underpricing rate obviously. In chapter five, I analyze the long term IPO return. The statistic description for IPO shows that the individual stock after IPO performs worse than the index, which means the long-term poor performance exists. The reasons for this phenomenon are also discussed in this part. Moreover, some evidences are given that the IPO underpricing and public appreciation continuously exists in the market in the long run after going public, the main reason is still the information asymmetry and arbitrage on new stock. Based on the above analyze, in chapter six I give some suggestion on how to eliminate the abnormal return. Firstly, I concluded the producing process of abnormal return. The serious speculation and information asymmetry in the IPO market contribute to the high initial return, which is not based on the intrinsic value of an IPO company. So it's a temporary high return and will be adjusted in the long run. If the IPOs do not have a good perfonnance to support the aftermarket price, their long term return will go down compared with the high initial return. The offering system can enlarges or reduces the IPO abnormal return through affecting the information asymmetry and speculation. Then I give some suggestions on how to reduce the abnormal IPO return, which is based on the optimum of offering system and the regulator on participator behavior.The main conclusion for this study is: firstly, both the initial underpricing and long-term underperformance still seriously existed in the process A Share IPO, although this situation has been slightly improved by the public system reform. Secondly, the value uncertainty of the new public stock and over speculating are the basic reasons for IPO underpricing in China. If there is no support coming from good operating perfonnance, the long-term underperformance will take place following the clarification of the intrinsic value factor after IPO and the modification for over speculation. Therefore the long-term return betraying short term return, and the higher the IPO underpricing, the worse the long-term return. Thirdly, although the underperformance is obvious, the phenomena that the price for the new share in the first three years is still higher than its offering price show that IPO underpricing exists in a long run. Fourthly, the new public system is a double bladed sword, suitable system will decrease the abnormal return by preventing the speculation in IPO market and reducing the information asymmetry and other way around. According to theresult of our empirical research, the new public system in China is effective for controlling abnormal return.The new findings for this study include four aspects: systemically generalizing the foreign theories on the long-term and short-term IPO return; comprehensively comparing the differences both between Chinese IPO market and western IPO market and among Chinese IPO market under different public system, the reasons for producing these differences are also explained. Besides, the main factor that leading to long-term underperformance is identified in this study and the relation between the long-term and short-term return is explained. Based on above findings, this study generalizes the producing process for IPO abnormal return in China.