Font Size: a A A

A Study On High IPO Underpricing And Bookbuilding Mechanism In China

Posted on:2008-11-03Degree:DoctorType:Dissertation
Country:ChinaCandidate:W Q XiongFull Text:PDF
GTID:1119360215490530Subject:Management Science and Engineering
Abstract/Summary:PDF Full Text Request
The phenomenon of IPO underpricing is existed almost every capital market in the world. Over the past three decades, many theories and hypotheses had put forward, but none of them was accepted accordantly. This phenomenon is also existed in China but different with maturity capital markets. The degree of IPO underpricing is high and hardly falls down for a long time. Based on Chinese special market conditions and institutional backgrounds, lots of theories and hypotheses had put forward, but some of them had been proved wrong by the practical tests and others still in the station of description and guess. Many empirical studies could find certain factors relating with IPO underpricing, but they can not measure how much degree is affected by these factors.Bookbuilding mechanism has been introduced in Chinese IPO markets since 2005, but IPO underpricing still high. Where the high IPO underpricing comes from? Why bookbuilding mechanism can not eliminate it? To answer these questions could help to eliminate high IPO underpricing and improve resources allocation efficiency in the primary market. On the other hand, the operating bookbuilding mechanism in China is quite differently with main stream mechanism. Could bookbuilding efficiency affected by these differences? Little theoretic and empirical study has been carried through. Based on these reasons, this thesis will study the high IPO underpricing phenomenon and operating bookbuilding mechanism in Chinese IPO markets systematically and try to answer these questions theoretically and empirically.In the study on high IPO underpricing, prior sentiment hypothesis is supposed firstly. That is, from the history information of high IPO underpricing, retail investors would overvalue IPO's intrinsic value and form fads in IPO market. Based on this hypothesis, a model about investors'prior optimistic sentiment and IPO underpricing is developed and some conclusions are derived: High IPO underpricing and long-run underperformance could arise from the investors'prior optimistic sentiment and bookbuilding can not eliminate it; When investors'optimistic sentiment existed in new issuing markets, IPO underpricing could be composed of deliberate underpricing in primary market and overvaluation in aftermarket. In the end, the significant positive relation between investors'prior optimistic sentiment and IPO underpricing is approved by empirical tests. Furthermore, IPO underpricing is decomposed by using stochastic frontier approach; the results indicate that IPOs did not deliberate underpricing in Chinese IPO markets, the high IPO underpricing maybe only came from the overvaluation in aftermarket.IPO allocation and lockup regulations for institutional investors are mainly studied in second part. According to different allocation regulations, that is to decide the institutional investors'IPO allocation shares before and after their bidding, two IPO underpricing models are developed by using share auction method, and the conclusion that the later is more effective than former is proved. Furthermore, a conclusion derived from share auction researches that demand shade could increase auction underprpicing is extened to risk aversion situation. In the end, we find out a liner collusive equilibrium bidding strategy and prove that this strategy is more operable and favourable for bidders than the non-linear equilibrium bidding strategy deduced by share auction theory.Then the effects of lockup regulation on institutional investors'behaviors are tested , the results show that lockup regulation restrained the IPO's price fluctuation but did not attain another object,that is,to encourage the institutional investors holding their IPO shares chronically. Secondly, we model the relationship between lockup period and IPO underpricing by extending Aggrawal's model and proves that when the marginal information momentum induced by the IPO underpricing is large enough, lockup period could not transfer firm's quality information effectively.The innovations of this thesis are as follows:â‘ By bring forward the investors'prior optimistic sentiment hypothesis, the paper developed a model of prior optimistic sentiment and IPO underpricing, then we proved that high IPO underpricing and long-run underperformance could arise from the investors'prior optimistic sentiment and IPO underpricing could be decomposed of deliberate underpricing in primary market and overvaluation in aftermarket.â‘¡Proved that uncertain supply could help to improve bookbuilding efficiency by developing the theoretic models according to different allocation regulations and extended some conclusions deduced from share auction research.â‘¢Based on the status quo in Chinese IPO market, the paper developed a model to analysis the relation of lockup period and IPO underpricing by extending Aggarwal's model and proved that when the marginal information momentum induced by the IPO underpricing is large enough, lockup period could not transfer firm's quality information effectively.
Keywords/Search Tags:IPO Underpricing, Bookbuilding Mechanism, Prior Optimistic Sentiment, Allocation Regulation, Lockup Regulation
PDF Full Text Request
Related items